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Discussion Paper
Municipal Debt Markets and the COVID-19 Pandemic
Cipriani, Marco; Haughwout, Andrew F.; La Spada, Gabriele; Kovner, Anna; Nee, Shawn; http://fedora:8080/fcrepo/rest/objects/authors/; Hyman, Benjamin (2020-06-29)
In March, with the outbreak of the COVID-19 pandemic in the United States, the market for municipal securities was severely stressed: mutual fund redemptions sparked unprecedented selling of municipal securities, yields increased sharply, and issuance dried up. In this post, we describe the evolution of municipal bond market conditions since the onset of the COVID-19 crisis. We show that conditions in municipal markets have improved significantly, in part a result of the announcement and implementation of several Federal Reserve facilities. Yields have decreased substantially, mutual funds ...
Liberty Street Economics , Paper 20200629

Report
It’s What You Say and What You Buy: A Holistic Evaluation of the Corporate Credit Facilities
Boyarchenko, Nina; Kovner, Anna; Shachar, Or (2020-07-01)
We evaluate the impact of the Federal Reserve corporate credit facilities (PMCCF and SMCCF). A third of the positive effect on prices and liquidity occurred on the announcement date. We document immediate pass-through into primary markets, particularly for eligible issuers. Improvements continue as additional information is shared and purchases begin, with the impact of bond purchases larger than the impact of purchases of ETFs. Exploiting cross-sectional evidence, we see the greatest impact on investment grade bonds and in industries less affected by COVID, concluding that the improvement in ...
Staff Reports , Paper 935

Discussion Paper
The Impact of the Corporate Credit Facilities
Boyarchenko, Nina; Kovner, Anna; Shachar, Or (2020-10-01)
American companies have raised almost $1 trillion in the U.S. corporate bond market since March. If companies had been unable to refinance those bonds, their inability to repay may have led to an immediate default on all of their obligations, creating a cascade of defaults and layoffs. Based on Compustat data, an inability to access public bond markets could have affected companies employing more than 16 million people. In this post, we document the impact of the Primary Market and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) on bond market functioning, summarizing a ...
Liberty Street Economics , Paper 20201001

Report
The impact of supervision on bank performance
Hirtle, Beverly; Plosser, Matthew; Kovner, Anna (2016-03-01)
We explore the impact of supervision on the riskiness, profitability, and growth of U.S. banks. Using data on supervisors? time use, we demonstrate that the top-ranked banks by size within a supervisory district receive more attention from supervisors, even after controlling for size, complexity, risk, and other characteristics. Using a matched sample approach, we find that these top-ranked banks that receive more supervisory attention hold less risky loan portfolios and are less volatile and less sensitive to industry downturns, but do not have slower growth or profitability. Our results ...
Staff Reports , Paper 768

Report
The private premium in public bonds
Wei, Chenyang; Kovner, Anna (2012)
This paper is the first to document the presence of a private premium in public bonds. We find that spreads are 31 basis points higher for public bonds of private companies than for bonds of public companies, even after controlling for observable differences, including rating, financial performance, industry, bond characteristics and issuance timing. The estimated private premium increases to 40-50 basis points when a propensity matching methodology is used or when we control for fixed issuer effects. Despite the premium pricing, bonds of private companies are no more likely to default or be ...
Staff Reports , Paper 553

Discussion Paper
Bank Capital and Risk: Cautionary or Precautionary?
Vickery, James; Hirtle, Beverly; Kovner, Anna (2015-02-02)
Do riskier banks have more capital? Banking companies with more equity capital are better protected against failure, all else equal, because they can absorb more losses before becoming insolvent. As a result, banks with riskier income and assets would hopefully choose to fund themselves with relatively more equity and less debt, giving them a larger equity cushion against potential losses. In this post, we use a top-down stress test model of the U.S. banking system?the Capital and Loss Assessment under Stress Scenarios (CLASS) model?to assess whether banks that are forecast to lose capital in ...
Liberty Street Economics , Paper 20150202

Report
COVID Response: The Commercial Paper Funding Facility
Boyarchenko, Nina; Crump, Richard K.; Kovner, Anna; Leonard, Deborah (2021-09-01)
The Federal Reserve reestablished the Commercial Paper Funding Facility (CPFF 2020) in response to the disruptions in the commercial paper market triggered by the COVID-19 pandemic and subsequent economic shutdowns. The CPFF 2020 was designed to support market functioning and provide a liquidity backstop for the commercial paper market. This paper provides an overview of the CPFF 2020, including detailing the facility’s design, documenting its usage, and describing its impact on commercial paper markets. In addition, we compare the market conditions and facility design in CPFF 2020 to that ...
Staff Reports , Paper 982

Discussion Paper
Becoming More Alike? Comparing Bank and Federal Reserve Stress Test Results
Hirtle, Beverly; McKay, Eric; Kovner, Anna (2014-07-21)
Stress tests have become an important method of assessing whether financial institutions have enough capital to operate in bad economic conditions. Under the provisions of the Dodd-Frank Act, both the Federal Reserve and large U.S. bank holding companies (BHCs) are required to do annual stress tests and to disclose these results to the public. While the BHCs’ and the Federal Reserve’s projections are made under the same macroeconomic scenario, the results differ, primarily because of differences in the models used to make the projections. In this post, we look at the 2014 stress test ...
Liberty Street Economics , Paper 20140721

Discussion Paper
How Does Supervision Affect Banks?
Hirtle, Beverly; Plosser, Matthew; Kovner, Anna (2016-04-13)
Supervisors monitor banks to assess the banks? compliance with rules and regulations but also to ensure that they engage in safe and sound practices (see our earlier post What Do Banking Supervisors Do?). Much of the work that bank supervisors do is behind the scenes and therefore difficult for outsiders to measure. In particular, it is difficult to know what impact, if any, supervisors have on the behavior of banks. In this post, we describe a new Staff Report in which we attempt to measure the impact that supervision has on bank performance. Does more attention by supervisors lead to lower ...
Liberty Street Economics , Paper 20160413

Report
Evaluating regulatory reform: banks’ cost of capital and lending
Van Tassel, Peter; Kovner, Anna (2018-06-01)
We examine the eﬀects of regulatory changes on banks’ cost of capital and lending. Since the passage of the Dodd-Frank Act, the value-weighted CAPM cost of capital for banks has averaged 10.5 percent and declined by more than 4 percent on a within-ﬁrm basis relative to ﬁnancial crisis highs. This decrease was much greater for the largest banks subject to new regulation than for other banks and ﬁrms. Over a longer twenty-year horizon, we ﬁnd that changes in the systematic risk of bank equity have real economic consequences: increases in banks’ cost of capital are associated with ...
Staff Reports , Paper 854

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