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Author:Adrian, Tobias 

Journal Article
Macroprudential policy: a case study from a tabletop exercise

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

Journal Article
Shadow banking

The rapid growth of the market-based financial system since the mid-1980s has changed the nature of financial intermediation. Within the system, ?shadow banks? have served a critical role, especially in the run-up to the recent financial crisis. Shadow banks are financial intermediaries that conduct maturity, credit, and liquidity transformation without explicit access to central bank liquidity or public sector credit guarantees. This article documents the institutional features of shadow banks, discusses the banks? economic roles, and analyzes their relation to the traditional banking ...
Economic Policy Review , Issue Dec , Pages 1-16

Journal Article
The Federal Reserve’s Commercial Paper Funding Facility

Established in the wake of Lehman Brothers? bankruptcy to stabilize severe disruptions in the commercial paper market, the Commercial Paper Funding Facility (CPFF) allowed the Federal Reserve to act as a lender of last resort for issuers of commercial paper, thereby effectively addressing temporary liquidity distortions and alleviating the severe funding stress that threatened to further exacerbate the financial crisis. In doing so, the CPFF can be considered a noteworthy model of liquidity provision in a market-based financial system, where maturity transformation occurs outside of the ...
Economic Policy Review , Volume 17 , Issue May , Pages 25-39

Discussion Paper
Do Treasury Term Premia Rise around Monetary Tightenings?

Some commentators have expressed concern that Treasury yields might rise sharply once the Federal Open Market Committee (FOMC) begins to raise the federal funds rate (FFR), worrying, in particular, about a sudden increase in Treasury term premia. In this post, we analyze the dynamics of Treasury term premia over the last fifty years and discuss their evolution around recent tightening cycles, paying special attention to the 1994 episode when bond prices dropped sharply around the world. We find that term premia don?t typically rise when monetary policy tightens. We also conclude, based on the ...
Liberty Street Economics , Paper 20130415

Discussion Paper
The Recent Bond Market Selloff in Historical Perspective

Long-term Treasury yields have risen sharply in recent months. The yield on the most recently issued ten-year note, for example, rose from 1.63 percent on May 2 to 2.74 percent on July 5, reaching its highest level since July 2011. Increasing yields result in realized or mark-to-market losses for fixed-income investors. In this post, we put these losses in historical perspective and investigate whether the yield changes are better explained by expectations of higher short-term rates in the future or by investors demanding greater compensation for holding long-term Treasuries.
Liberty Street Economics , Paper 20130805

Discussion Paper
Dealer Balance Sheet Capacity and Market Liquidity during the 2013 Selloff in Fixed-Income Markets

Long-term interest rates hit record-low levels in 2012 but have since increased substantially. As discussed in an earlier post, the sharpest increase occurred between May 2 and July 5 of this year, with the ten-year Treasury yield rising from 1.63 percent to 2.74 percent. During the May-July episode, market liquidity also deteriorated. Some market participants have suggested that constraints on dealer balance sheet capacity impaired liquidity during the selloff, amplifying the magnitude and speed of the rise in interest rates and volatility. In this post, we review the evolution of Treasury ...
Liberty Street Economics , Paper 20131016a

Discussion Paper
Intermediary Leverage Cycles and Financial Stability

The financial crisis of 2007-09 highlighted the central role that financial intermediaries play in the propagation and amplification of shocks. Intermediaries increase leverage during the boom, which then makes them more vulnerable to adverse economic developments. In this post, we review evidence on the balance-sheet behavior of financial intermediaries and describe a channel that allows intermediaries to increase leverage during booms when asset market volatility tends to be low, which in turn forces them to dramatically reduce leverage once volatility increases. As shown during the ...
Liberty Street Economics , Paper 20131120

Discussion Paper
Liquidity Risk, Liquidity Management, and Liquidity Policies

During the 2007-09 financial crisis, banks experienced widespread funding shortages, with shortfalls even hindering adequately capitalized banks. The Federal Reserve responded to the funding shortages by creating liquidity backstops to insulate the real economy from the banking sector?s liquidity crisis. The regulatory reforms initiated by the Dodd-Frank Act and Basel III introduced systematic liquidity risk management into bank regulations. In the past year, research economists from the Federal Reserve Bank of New York have undertaken a number of research projects to further the conceptual ...
Liberty Street Economics , Paper 20140414b

Discussion Paper
Liquidity Policies and Systemic Risk

One of the most innovative and potentially far-reaching consequences of regulatory reform since the financial crisis has been the development of liquidity regulations for the banking system. While bank regulation traditionally focuses on requiring a minimum amount of capital, liquidity requirements impose a minimum amount of liquid assets. In this post, we provide a conceptual framework that allows us to evaluate the impact of liquidity requirements on economic growth, the creation of systemic risk, and household welfare. Importantly, the framework addresses both liquidity requirements and ...
Liberty Street Economics , Paper 20140417

Discussion Paper
Treasury Term Premia: 1961-Present

Treasury yields can be decomposed into two components: expectations of the future path of short-term Treasury yields and the Treasury term premium. The term premium is the compensation that investors require for bearing the risk that short-term Treasury yields do not evolve as they expected. Studying the term premium over a long time period allows us to investigate what has historically driven changes in Treasury yields. In this blog post, we estimate and analyze the Treasury term premium from 1961 to the present, and make these estimates available for download here.
Liberty Street Economics , Paper 20140512

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