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Author:Bianco, Timothy 

Working Paper
SAFE: An early warning system for systemic banking risk
This paper builds on existing microprudential and macroprudential early warning systems (EWSs) to develop a new, hybrid class of models for systemic risk, incorporating the structural characteristics of the fi nancial system and a feedback amplification mechanism. The models explain fi nancial stress using both public and proprietary supervisory data from systemically important institutions, regressing institutional imbalances using an optimal lag method. The Systemic Assessment of Financial Environment (SAFE) EWS monitors microprudential information from the largest bank holding companies to anticipate the buildup of macroeconomic stresses in the financial markets. To mitigate inherent uncertainty, SAFE develops a set of medium-term forecasting specifi cations that gives policymakers enough time to take ex-ante policy action and a set of short-term forecasting specifications for verification and adjustment of supervisory actions. This paper highlights the application of these models to stress testing, scenario analysis, and policy.
AUTHORS: Oet, Mikhail V.; Bianco, Timothy; Ong, Stephen J.; Gramlich, Dieter; Eiben, Ryan; Wang, Jing
DATE: 2011

Working Paper
Financial stress index: a lens for supervising the financial system
This paper develops a new financial stress measure (Cleveland Financial Stress Index, CFSI) that considers the supervisory objective of identifying risks to the stability of the financial system. The index provides a continuous signal of financial stress and broad coverage of the areas that could indicate it. The construction methodology uses daily public market data collected from different sectors of financial markets. A unique feature of the index is that it employs a dynamic weighting method that captures the changing relative importance of the different sectors of the financial system. This study shows how the index can be applied to monitoring and analyzing financial system conditions.
AUTHORS: Bianco, Timothy; Ong, Stephen J.; Gramlich, Dieter; Oet, Mikhail V.
DATE: 2012

Working Paper
The financial stress index: identification of systemic risk conditions
This paper develops a financial stress index for the United States, the Cleveland Financial Stress Index (CFSI), which provides a continuous signal of financial stress and broad coverage of the areas that could indicate it. The index is based on daily public-market data collected from four sectors of the fi nancial markets?the credit, foreign exchange, equity, and interbank markets. A dynamic weighting method is employed to capture changes in the relative importance of these four sectors as they occur. In addition, the design of the index allows the origin of the stress to be identified. We compare the CFSI to alternative indexes, using a detailed benchmarking methodology, and show how the CFSI can be applied to systemic stress monitoring and early warning system design. To that end, we investigate alternative stress-signaling thresholds and frequency regimes and then establish optimal frequencies for filtering out market noise and idiosyncratic episodes. Finally, we quantify a powerful CFSI-based rating system that assigns a probability of systemic stress to ranges of CFSI outcomes.
AUTHORS: Ong, Stephen J.; Bianco, Timothy; Eiben, Ryan; Gramlich, Dieter; Oet, Mikhail V.
DATE: 2011

Journal Article
The Often-Ignored Regional Banking Sector
AUTHORS: Bianco, Timothy; Balasubramanyan, Lakshmi
DATE: 2015-02

Journal Article
The Cleveland financial stress index
To promote stability in a dynamic fi nancial system, supervisors must monitor the system for risks at all times. The Cleveland Fed has developed an index of fi nancial stress, the CFSI, which is designed to track distress in the fi nancial system as it is building. The CFSI will help financial system supervisors monitor and understand the state of fi nancial markets on a real-time basis, and take appropriate regulatory or supervisory action as necessary.
AUTHORS: Bianco, Timothy; Oet, Mikhail V.; Ong, Stephen J.
DATE: 2012-03

Journal Article
Inflation: noise, risk, and expectations
The most frequently cited measures of inflation expectations, from TIPS-derived indicators to survey-based estimates like Blue Chip forecasts, have some inherent limitations when it comes to applying them to questions of monetary policy. Recently, researchers developed a model that takes information from a number of sources and produces estimates of inflation expectations that are superior to these popular measures in a number of respects. This Commentary explains how these estimates are better and what they imply for current monetary policy.
AUTHORS: Bianco, Timothy; Haubrich, Joseph G.
DATE: 2010-06

Journal Article
Household balance sheets and the recovery
Falling home and financial asset prices have combined to weaken the average household?s balance sheet, and this has helped to slow down the current recovery. We examine the role that household balance sheets have typically played in postwar business cycles and assess their importance in explaining why some recoveries, including the current one, have been weaker than others.
AUTHORS: Occhino, Filippo; Bianco, Timothy
DATE: 2011-03

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