Discussion Paper
How the High Level of Reserves Benefits the Payment System
Bech, Morten L.; McAndrews, James J.; Martin, Antoine (2012-02-27)
Since October 2008, the Federal Reserve has increased the size of its balance sheet by lending to financial intermediaries and purchasing assets on a large scale. While these actions have increased the amount of reserves in the U.S. banking system and therefore raised concerns about excessive bank lending and inflation, we can document an important and overlooked benefit of the high level of reserves: a significantly earlier settlement of payments on Fedwire, the Federal Reserve’s large-value payment system. Quicker settlement on Fedwire improves liquidity throughout the economy, reducing ...
Liberty Street Economics , Paper 20120227

Journal Article
Global trends in large-value payments
Preisig, Christine; Bech, Morten L.; Soramaki, Kimmo (2008-09)
Globalization and technological innovation are two major forces affecting the financial system and its infrastructure. Perhaps nowhere are these trends more apparent than in the internationalization and automation of payments. While the effects of globalization and technological innovation are most obvious on retail payments, the influence is equally impressive on wholesale, or interbank, payments. Given the importance of payments and settlement systems to the smooth operation and resiliency of the financial system, it is important to understand the potential consequences of these ...
Economic Policy Review , Volume 14 , Issue Sep , Pages 59-81

Report
The Federal Home Loan Bank System: the lender of next-to-last resort?
Ashcraft, Adam B.; Bech, Morten L.; Frame, W. Scott (2008)
The Federal Home Loan Bank (FHLB) System is a large, complex, and understudied government-sponsored liquidity facility that currently has more than $1 trillion in secured loans outstanding, mostly to commercial banks and thrifts. In this paper, we document the significant role played by the FHLB System at the onset of the ongoing financial crises and then provide evidence on the uses of these funds by the System's bank and thrift members. Next, we identify the trade-offs faced by member-borrowers when choosing between accessing the FHLB System or the Federal Reserve's Discount Window during ...
Staff Reports , Paper 357

Report
The topology of interbank payment flows
Arnold, Jeffrey; Bech, Morten L.; Glass, Robert J.; Beyeler, Walter E.; Soramaki, Kimmo (2006)
We explore the network topology of the interbank payments transferred between commercial banks over the Fedwire Funds Service. We find that the network is compact despite low connectivity. The network includes a tightly connected core of money-center banks to which all other banks connect. The degree distribution is scale-free over a substantial range. We find that the properties of the network changed considerably in the immediate aftermath of the attacks of September 11, 2001.
Staff Reports , Paper 243

Working Paper
Arbitrage, liquidity and exit: the repo and federal funds markets before, during, and emerging from the financial crisis
Klee, Elizabeth C.; Bech, Morten L.; Stebunovs, Viktors (2012)
This paper examines the link between the federal funds and repo markets, before, during, and emerging from the financial crisis that began in August 2007. In particular, the paper investigates the initial transmission of monetary policy to closely related money markets, pricing of risk, and liquidity effects, and then shows how these could interact if the Federal Reserve removes the substantial amount of liquidity currently in the federal funds market. The results suggest that pass-through from the federal funds rate to the repo deteriorated somewhat during the zero lower bound period, likely ...
Finance and Economics Discussion Series , Paper 2012-21

Report
The topology of the federal funds market
Bech, Morten L.; Atalay, Enghin (2008)
The recent turmoil in global financial markets underscores the importance of the federal funds market as a means of distributing liquidity throughout the financial system and a tool for implementing monetary policy. In this paper, we explore the network topology of the federal funds market. We find that the network is sparse, exhibits the small-world phenomenon, and is disassortative. In addition, reciprocity loans track the federal funds rate, and centrality measures are useful predictors of the interest rate of a loan.
Staff Reports , Paper 354

Journal Article
Settlement liquidity and monetary policy implementation—lessons from the financial crisis
Bech, Morten L.; McAndrews, James J.; Martin, Antoine (2012-03)
The U.S. dollar clearing and settlement system received little attention during the recent financial crisis, mainly because it performed reliably, processing record volumes and values of trades made in stressed financial markets. This article shows how Federal Reserve policy measures aimed at providing liquidity and stability to the financial system during and after the crisis had a major impact on settlement liquidity and thus on the efficiency of clearing and settlement system activity. The measures led to a substantial decrease in daylight overdrafts extended by the Federal Reserve and a ...
Economic Policy Review , Volume 18 , Issue Mar , Pages 3-20

Report
Which bank is the \\"central\\" bank? an application of Markov theory to the Canadian Large Value Transfer System
Garratt, Rod; Chapman, James T. E.; Bech, Morten L. (2008-11-01)
Recently, economists have argued that a bank's importance within the financial system depends not only on its individual characteristics but also on its position within the banking network. A bank is deemed to be "central" if, based on our network analysis, it is predicted to hold the most liquidity. In this paper, we use a method similar to Google's PageRank procedure to rank banks in the Canadian Large Value Transfer System (LVTS). In doing so, we obtain estimates of the payment processing speeds for the individual banks. These differences in processing speeds are essential for ...
Staff Reports , Paper 356

Journal Article
Profits and balance sheet developments at U.S. commercial banks in 2008
Rice, Tara N.; Bech, Morten L. (2009)
Reviews recent developments in the balance sheets and in the profitability of U.S. commercial banks. The article discusses how developments in the U.S. banking industry in 2008 and early 2009 were related to changes in financial markets and in the broader economy.
Federal Reserve Bulletin , Volume 95 , Issue 6

Working Paper
The Federal Home Loan Bank System: the lender of next-to-last resort?
Ashcraft, Adam B.; Bech, Morten L.; Frame, W. Scott (2009)
The Federal Home Loan Bank (FHLB) System is a large, complex, and understudied government-sponsored liquidity facility that currently has more than $1 trillion in secured loans outstanding, mostly to commercial banks and thrifts. This paper first documents the significant role played by the FHLB System at the outset of the ongoing financial crisis and then provides evidence about the uses of these funds by their bank and thrift members. We then identify the trade-offs faced by FHLB member-borrowers when choosing between accessing the FHLB System or the Federal Reserve's discount window during ...
FRB Atlanta Working Paper , Paper 2009-04