Search Results
Discussion Paper
Are Asset Managers Vulnerable to Fire Sales?
Cetorelli, Nicola; Eisenbach, Thomas M.; Duarte, Fernando M.
(2016-02-18)
According to conventional wisdom, an open-ended investment fund that has a floating net asset value (NAV) and no leverage will never experience a run and hence never have to fire-sell assets. In that view, a decline in the value of the fund’s assets will just lead to a commensurate and automatic decline in the fund’s equity—end of story. In this post, we argue that the conventional wisdom is incomplete and then explore some of the systemic risk consequences of investment funds’ vulnerabilities to fire-sale spillovers.
Liberty Street Economics
, Paper 20160218
Journal Article
Stability of funding models: an analytical framework
Yorulmazer, Tanju; Eisenbach, Thomas M.; McAndrews, James J.; Keister, Todd
(2014-02)
With the recent financial crisis, many financial intermediaries experienced strains created by declining asset values and a loss of funding sources. In reviewing these stress events, one notices that some arrangements appear to have been more stable?that is, better able to withstand shocks to their asset values and/or funding sources?than others. Because the precise determinants of this stability are not well understood, gaining a better grasp of them is a critical task for market participants and policymakers as they try to design more resilient arrangements and improve financial regulation. ...
Economic Policy Review
, Issue Feb
, Pages 29-47
Report
Supervising large, complex financial companies: what do supervisors do?
Lucca, David O.; Haughwout, Andrew F.; Hirtle, Beverly; Eisenbach, Thomas M.; Kovner, Anna; Plosser, Matthew
(2015-05-01)
The Federal Reserve is responsible for the prudential supervision of bank holding companies (BHCs) on a consolidated basis. Prudential supervision involves monitoring and oversight to assess whether these firms are engaged in unsafe or unsound practices, as well as ensuring that firms are taking corrective actions to address such practices. Prudential supervision is interlinked with, but distinct from, regulation, which involves the development and promulgation of the rules under which BHCs and other regulated financial intermediaries operate. This paper describes the Federal Reserve?s ...
Staff Reports
, Paper 729
Discussion Paper
How Can Safe Asset Markets Be Fragile?
Eisenbach, Thomas M.; Phelan, Gregory
(2022-09-08)
The market for U.S. Treasury securities experienced extreme stress in March 2020, when prices dropped precipitously (yields spiked) over a period of about two weeks. This was highly unusual, as Treasury prices typically increase during times of stress. Using a theoretical model, we show that markets for safe assets can be fragile due to strategic interactions among investors who hold Treasury securities for their liquidity characteristics. Worried about having to sell at potentially worse prices in the future, such investors may sell preemptively, leading to self-fulfilling “market runs” ...
Liberty Street Economics
, Paper 20220908
Report
Anxiety in the face of risk
Eisenbach, Thomas M.; Schmalz, Martin C.
(2013)
We model an ?anxious? agent as one who is more risk averse with respect to imminent risks than with respect to distant risks. Based on a utility function that captures individual subjects? behavior in experiments, we provide a tractable theory relaxing the restriction of constant risk aversion across horizons and show that it generates rich implications. We first apply the model to insurance markets and explain the high premia for short-horizon insurance. Then, we show that costly delegated portfolio management, investment advice, and withdrawal fees emerge as endogenous features and ...
Staff Reports
, Paper 610
Discussion Paper
How Has Post-Crisis Banking Regulation Affected Hedge Funds and Prime Brokers?
Boyarchenko, Nina; Eisenbach, Thomas M.; Gupta, Pooja; Shachar, Or; Van Tassel, Peter
(2020-10-19)
“Arbitrageurs” such as hedge funds play a key role in the efficiency of financial markets. They compare closely related assets, then buy the relatively cheap one and sell the relatively expensive one, thereby driving the prices of the assets closer together. For executing trades and other services, hedge funds rely on prime brokers and broker-dealers. In a previous Liberty Street Economics blog post, we argued that post-crisis changes to regulation and market structure have increased the costs of arbitrage activity, potentially contributing to the persistent deviations in the prices of ...
Liberty Street Economics
, Paper 20201019
Discussion Paper
Banking System Vulnerability: 2022 Update
Crosignani, Matteo; Eisenbach, Thomas M.; Fringuellotti, Fulvia
(2022-11-14)
To assess the vulnerability of the U.S. financial system, it is important to monitor leverage and funding risks—both individually and in tandem. In this post, we provide an update of four analytical models aimed at capturing different aspects of banking system vulnerability with data through 2022:Q2, assessing how these vulnerabilities have changed since last year. The four models were introduced in a Liberty Street Economics post in 2018 and have been updated annually since then.
Liberty Street Economics
, Paper 20221114
Working Paper
Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?
Macchiavelli, Marco; Eisenbach, Thomas M.; Anadu, Kenechukwu E.; Cipriani, Marco; La Spada, Gabriele; Wang, J. Christina; Huang, Catherine; Malfroy-Camine, Antoine; Azar, Pablo D.; Landoni, Mattia
(2023-08-24)
Stablecoins and money market funds both seek to provide investors with safe, money-like assets but are vulnerable to runs in times of stress. In this paper, we investigate similarities and differences between the two, comparing investor behavior during the stablecoin runs of 2022 and 2023 to investor behavior during the money market fund runs of 2008 and 2020. We document that, similar to money market fund investors, stablecoin investors engage in flight-to-safety, with net flows from riskier to safer stablecoins during run periods. However, whereas in money market funds run risk has ...
Supervisory Research and Analysis Working Papers
, Paper SRA 23-02
Discussion Paper
On Fire-Sale Externalities, TARP Was Close to Optimal
Eisenbach, Thomas M.; Duarte, Fernando M.
(2014-04-15)
Imagine that many large and levered banks suffer heavy losses and must quickly sell assets to reduce their leverage. We expect the market price of the assets sold to decline, at least temporarily. As a result, any other financial institutions that happen to hold the same assets will experience balance sheet losses through no fault of their own —a negative fire-sale externality. In this post, we show that the vulnerability to fire-sale externalities was high during the crisis and that the capital injections of the government’s Troubled Asset Relief Program (TARP) helped reduce it ...
Liberty Street Economics
, Paper 20140415
Report
Cournot Fire Sales
Eisenbach, Thomas M.; Phelan, Gregory
(2018-02-01)
In standard Walrasian macro-finance models, pecuniary externalities due to fire sales lead to excessive borrowing and insufficient liquidity holdings. We investigate whether imperfect competition (Cournot) improves welfare through internalizing the externality and find that this is far from guaranteed. Cournot competition can overcorrect the inefficiently high borrowing in a standard model of levered real investment. In contrast, Cournot competition can exacerbate the inefficiently low liquidity in a standard model of financial portfolio choice. Implications for welfare and regulation are ...
Staff Reports
, Paper 837
FILTER BY year
FILTER BY Bank
Federal Reserve Bank of New York 46 items
Federal Reserve Bank of Boston 4 items
Federal Reserve Bank of Richmond 2 items
FILTER BY Series
Liberty Street Economics 27 items
Staff Reports 16 items
Economic Policy Review 3 items
Supervisory Research and Analysis Working Papers 3 items
Richmond Fed Economic Brief 1 items
Working Paper 1 items
Working Papers 1 items
show more (2)
show less
FILTER BY Content Type
Discussion Paper 27 items
Report 16 items
Working Paper 5 items
Journal Article 3 items
Briefing 1 items
FILTER BY Author
Cipriani, Marco 12 items
Kovner, Anna 11 items
Anadu, Kenechukwu E. 8 items
Azar, Pablo D. 8 items
Huang, Catherine 8 items
La Spada, Gabriele 8 items
Landoni, Mattia 8 items
Macchiavelli, Marco 8 items
Malfroy-Camine, Antoine 8 items
Wang, J. Christina 8 items
Duarte, Fernando M. 7 items
Crosignani, Matteo 5 items
Fringuellotti, Fulvia 5 items
Lucca, David O. 5 items
Boyarchenko, Nina 4 items
Phelan, Gregory 4 items
Schmalz, Martin C. 4 items
Shachar, Or 4 items
Yorulmazer, Tanju 4 items
Choi, Dong Beom 3 items
Gupta, Pooja 3 items
Lee, Michael Junho 3 items
Van Tassel, Peter 3 items
Andries, Marianne 2 items
Blickle, Kristian S. 2 items
Cetorelli, Nicola 2 items
Haughwout, Andrew F. 2 items
Hirtle, Beverly 2 items
Plosser, Matthew 2 items
Townsend, Robert M. 2 items
Afonso, Gara 1 items
Biesenbach, Adam 1 items
Eisner, Emily 1 items
Fleming, Michael J. 1 items
Frye, Kyra 1 items
Hall, Helene 1 items
Infante, Sebastian 1 items
Kahn, R. Jay 1 items
Keister, Todd 1 items
McAndrews, James J. 1 items
Shen, Karen 1 items
Vickery, James 1 items
de Fontnouvelle, Patrick 1 items
show more (39)
show less
FILTER BY Jel Classification
G2 16 items
G21 15 items
G1 13 items
G23 10 items
G28 10 items
G20 9 items
G01 8 items
G10 7 items
G12 6 items
D81 3 items
E58 3 items
G18 3 items
D03 2 items
E41 2 items
E5 2 items
G0 2 items
G02 2 items
G3 2 items
G32 2 items
C7 1 items
C72 1 items
C73 1 items
D01 1 items
D43 1 items
D53 1 items
D62 1 items
D82 1 items
D83 1 items
D90 1 items
E2 1 items
E4 1 items
E42 1 items
E44 1 items
E52 1 items
G11 1 items
G13 1 items
G1;G2 1 items
G24 1 items
show more (33)
show less
FILTER BY Keywords
stablecoins 8 items
financial stability 7 items
runs 7 items
COVID-19 6 items
bank runs 6 items
fire sales 6 items
payments 6 items
crypto assets 5 items
liquidity 5 items
liquidity transformation 5 items
money market mutual funds 5 items
banks 4 items
financial crisis 4 items
bank regulation 3 items
bank run 3 items
bank supervision 3 items
fire sale 3 items
global games 3 items
networks 3 items
safe assets 3 items
wholesale funding 3 items
Treasury securities 2 items
banking system vulnerability 2 items
concentration 2 items
coordination 2 items
cyber 2 items
dynamic inconsistency 2 items
financial stability 2 items
hedge funds 2 items
large and complex financial companies 2 items
leverage 2 items
liquidity shocks 2 items
market run 2 items
maturity 2 items
monetary policy transmission 2 items
public signals 2 items
term structures 2 items
volatility risk 2 items
vulnerability 2 items
Bank Regulation 1 items
Bank Supervision 1 items
Banks 1 items
CLASS model 1 items
Crypto Assets 1 items
Cyber banking 1 items
Dodd-Frank act 1 items
Facebook 1 items
Fire sales 1 items
Fire-Sales 1 items
Funding models 1 items
GCF repo 1 items
IPO 1 items
Liberty Street Economics 1 items
Monitoring 1 items
Mutual Fund 1 items
Mutual funds 1 items
Stock market 1 items
Sunspots 1 items
Systemic Risk 1 items
Systemic risk 1 items
TARP 1 items
Time Use 1 items
Treasuries 1 items
arbitrage 1 items
asset managers 1 items
bank capital 1 items
bank holding company 1 items
banking 1 items
banking system 1 items
basis trades 1 items
beta 1 items
biases 1 items
capital 1 items
cost of capital 1 items
cryptocurrency 1 items
currency 1 items
cyber vulnerability 1 items
cyberattacks 1 items
data 1 items
deception 1 items
early resolution 1 items
financial frictions 1 items
financial institutions 1 items
financial intermediation 1 items
financial regulations 1 items
fire sale vulnerability 1 items
fire-sale externalities 1 items
fire-sale risk 1 items
heterogeneous agents 1 items
high yield 1 items
insurance 1 items
interest rate dispersion 1 items
linkage 1 items
liquiditiy 1 items
liquidity mismatch 1 items
liquidity risk 1 items
macroprudential regulations 1 items
market discipline 1 items
market power 1 items
money 1 items
money market funds (MMFs) 1 items
money market mutual funds (MMF) 1 items
money markets 1 items
monitoring 1 items
option returns 1 items
overconfidence 1 items
overinvestment 1 items
payment 1 items
post-crisis regulations 1 items
prime brokers 1 items
reserves 1 items
risk aversion 1 items
risk premia 1 items
risk taking 1 items
rollover risk 1 items
run risk 1 items
solvency 1 items
supplementary leverage ratio 1 items
systemic risk 1 items
term structure 1 items
time use 1 items
tri-party repo market 1 items
show more (117)
show less