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Report
The changing nature of financial intermediation and the financial crisis of 2007-09
Adrian, Tobias; Shin, Hyun Song (2010)
The financial crisis of 2007-09 highlighted the changing role of financial institutions and the growing importance of the "shadow banking system," which grew out of the securitization of assets and the integration of banking with capital market developments. This trend was most pronounced in the United States, but it also had a profound influence on the global financial system as a whole. In a market-based financial system, banking and capital market developments are inseparable, and funding conditions are tied closely to fluctuations in the leverage of market-based financial intermediaries. ...
Staff Reports , Paper 439

Report
On the scale of financial intermediaries
Shin, Hyun Song; Adrian, Tobias; Boyarchenko, Nina (2015-10-01)
This paper studies the economic scale of financial institutions. We show that banks and security broker-dealers actively smooth book equity by adjusting payouts. The smoothing of book equity is associated with procyclical book leverage and procyclical net payouts. In contrast, market leverage largely reflects movements in valuation levels as measured by book-to-market ratios. The 2008 crisis caused a structural break, after which the growth rates of the banking and dealer sectors have been subdued relative to pre-crisis levels. We draw conclusions for theories of financial intermediation and ...
Staff Reports , Paper 743

Discussion Paper
Changes in the Returns to Market Making
Stackman, Daniel; Vogt, Erik; Shachar, Or; Fleming, Michael J.; Adrian, Tobias (2015-10-07)
Since the financial crisis, major U.S. banking institutions have increased their capital ratios in response to tighter capital requirements. Some market analysts have asserted that the higher capital and liquidity requirements are driving up the costs of market making and reducing market liquidity. If regulations were, in fact, increasing the cost of market making, one would expect to see a rise in the expected returns to that activity. In this post, we estimate market-making returns in equity and corporate bond markets to assess the impact of regulations.
Liberty Street Economics , Paper 20151007

Report
Financial stability policies for shadow banking
Adrian, Tobias (2014-02-01)
This paper explores financial stability policies for the shadow banking system. I tie policy options to economic mechanisms for shadow banking that have been documented in the literature. I then illustrate the role of shadow bank policies using three examples: agency mortgage real estate investment trusts, leveraged lending, and captive reinsurance affiliates. For each example, the economic mechanisms are explained, the potential risks emanating from the activities are described, and policy options to mitigate such risks are listed. The overarching theme of the analysis is that any policy ...
Staff Reports , Paper 664

Report
Macroprudential policy: case study from a tabletop exercise
Adrian, Tobias; de Fontnouvelle, Patrick; Yang, Emily; Zlate, Andrei (2015-09-01)
Since the global financial crisis of 2007-09, policymakers and academics around the world have advocated the use of prudential tools for macroprudential purposes. This paper presents a macroprudential tabletop exercise that aimed at confronting Federal Reserve Bank presidents with a plausible, albeit hypothetical, macro-financial scenario that would lend itself to macroprudential considerations. In the tabletop exercise, the primary macroprudential objective was to reduce the likelihood and severity of possible future financial disruptions associated with the hypothetical overheating ...
Staff Reports , Paper 742

Discussion Paper
Has Liquidity Risk in the Corporate Bond Market Increased?
Fleming, Michael J.; Vogt, Erik; Stackman, Daniel; Adrian, Tobias; Shachar, Or (2015-10-06)
Recent commentary suggests concern among market participants about corporate bond market liquidity. However, we showed in our previous post that liquidity in the corporate bond market remains ample. One interpretation is that liquidity risk might have increased, even as the average level of liquidity remains sanguine. In this post, we propose a measure of liquidity risk in the corporate bond market and analyze its evolution over time.
Liberty Street Economics , Paper 20151006b

Report
Shadow banking regulation
Adrian, Tobias; Ashcraft, Adam B. (2012)
Shadow banks conduct credit intermediation without direct, explicit access to public sources of liquidity and credit guarantees. Shadow banks contributed to the credit boom in the early 2000s and collapsed during the financial crisis of 2007-09. We review the rapidly growing literature on shadow banking and provide a conceptual framework for its regulation. Since the financial crisis, regulatory reform efforts have aimed at strengthening the stability of the shadow banking system. We review the implications of these reform efforts for shadow funding sources including asset-backed commercial ...
Staff Reports , Paper 559

Report
Financial intermediaries and monetary economics
Adrian, Tobias; Shin, Hyun Song (2009)
We reconsider the role of financial intermediaries in monetary economics. We explore the hypothesis that financial intermediaries drive the business cycle by way of their role in determining the price of risk. In this framework, balance sheet quantities emerge as a key indicator of risk appetite and hence of the "risk-taking channel" of monetary policy. We document evidence that the balance sheets of financial intermediaries reflect the transmission of monetary policy through capital market conditions. We find short-term interest rates to be important in influencing the size of financial ...
Staff Reports , Paper 398

Report
Macro risk premium and intermediary balance sheet quantities
Adrian, Tobias; Moench, Emanuel; Shin, Hyun Song (2010)
The macro risk premium measures the threshold return for real activity that receives funding from savers. We base our argument in this paper on the relationship between the macro risk premium and the growth of financial intermediaries' balance sheets. The spare capacity of their balance sheets determines the intermediaries' risk appetite, which in turn determines the real projects that receive funding and, hence, the supply of credit. Monetary policy affects risk appetite by changing the ability of intermediaries to leverage their capital. We estimate the time-varying risk appetite of ...
Staff Reports , Paper 428

Journal Article
Macroprudential policy: a case study from a tabletop exercise
Adrian, Tobias; Yang, Emily; de Fontnouvelle, Patrick; Zlate, Andrei (2017)
Since the global financial crisis of 2007-09, policymakers and academics have advocated the use of prudential policy tools to reduce the risks that could inhibit the financial sector?s ability to intermediate credit. The use of such tools in the service of financial stability is often called macroprudential policy. This article describes a ?tabletop? exercise in which Federal Reserve Bank presidents were presented with a hypothetical scenario of overheating markets and asked to consider the effectiveness of macroprudential policy approaches in averting or moderating the financial disruptions ...
Economic Policy Review , Issue 23-1 , Pages 1-30

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