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Author:Macchiavelli, Marco 

Working Paper
The Political Origin of Home Bias: The Case of Europe

We show that politics is at the root of the banks-sovereign nexus that exacerbated the Eurozone crisis. First, government-owned banks or banks with politicians in the board of directors display higher home bias in sovereign debt compared to privately-owned banks throughout the 2010-2013 period. Second, only government-owned banks increased the home bias during the sovereign crisis (moral suasion). We exploit the fact that equity injections (bail-outs) by domestic governments were not directly targeted to politically connected banks to show that, upon receiving such assistance, only ...
Finance and Economics Discussion Series , Paper 2016-060

Working Paper
Endogenous Debt Maturity and Rollover Risk

We challenge the common view that short-term debt, by having to be rolled over continuously, is a risk factor that exposes banks to higher default risk. First, we show that the average effect of expiring obligations on default risk is insignificant; it is only when a bank has limited access to new funds that maturing debt has a detrimental impact on default risk. Next, we show that both limited access to new funds and shorter maturities are causally determined by deteriorating market expectations about the bank's future profitability. In other words, short-term debt is not a cause of ...
Finance and Economics Discussion Series , Paper 2016-074

Working Paper
Emergency Collateral Upgrades

During the 2008-09 financial crisis, the Federal Reserve established two emergency facilities for broker-dealers. One provided collateralized loans. The other lent securities against a pledge of other securities, effectively providing collateral upgrades, an operation similar to activities traditionally undertaken by broker-dealers. We find that these facilities alleviated dealers' funding pressures when access to repos backed by illiquid collateral deteriorated. We also find that dealers used the facilities, especially the ability to upgrade collateral, to continue funding their own illiquid ...
Finance and Economics Discussion Series , Paper 2018-078

Working Paper
The Role of Dispersed Information in Pricing Default: Evidence from the Great Recession

The recent Global Games literature makes important predictions on how financial crises unfold. We test the empirical relevance of these theories by analyzing how dispersed information affects banks' default risk. We find evidence that precise information acts as a coordination device which reduces creditors' willingness to roll over debt to a bank, thus increasing both its default risk and its vulnerability to changes in expectations. We establish two new results. First, given an unfavorable median forecast, less dispersed beliefs greatly increase default risk; this is consistent with ...
Finance and Economics Discussion Series , Paper 2015-79

Working Paper
Interest on Reserves and Arbitrage in Post-Crisis Money Markets

Currently, Eurodollars and fed funds markets combined trade about $220 billion in funds daily, the vast majority of which with overnight tenor. In this paper, we document several features of these wholesale unsecured dollar funding markets. Using daily confidential data on wholesale unsecured borrowing and reserve balances, we show that foreign banks, which make up most of the trading volumes in these markets, keep around 99% of each additional Eurodollar and 80% of each fed fund borrowed as reserve balances. With these risk-free trades, banks earn the spread between interest on reserves and ...
Finance and Economics Discussion Series , Paper 2017-124

Working Paper
Liquidity Regulation and Financial Intermediaries

We document several effects of the Liquidity Coverage Ratio (LCR) rule on dealers' financing and intermediation of securities. For identification, we exploit the fact that the US implementation is more stringent than that in foreign jurisdictions. In line with LCR incentives, US dealers reduce their reliance on repos as a way to finance inventories of high-quality assets and increase the maturity of lower-quality repos relative to foreign dealers; additionally, US dealers cut back on trades that downgrade their own collateral. Dealers are nevertheless still providing significant maturity ...
Finance and Economics Discussion Series , Paper 2018-084

Discussion Paper
Primary Dealers' Behavior during the 2007-08 Crisis : Part I, Repo Runs

This is the first of two notes that empirically document the behavior of U.S. Primary Dealers during the 2007-08 financial crisis. In this note we show that dealers' exposure to risky assets drives the observed repo funding squeeze; moreover, as evident from Lehman's experience, we show that repos become subject to counterparty risk during periods of stress, even when collateralized by the safest assets.
FEDS Notes , Paper 2017-06-22-1

Discussion Paper
Primary Dealers' Behavior during the 2007-08 Crisis : Part II, Intermediation and Deleveraging

In this second of two notes we study how dealers deleverage following the 2007-2008 funding squeeze.
FEDS Notes , Paper 2017-06-28

Discussion Paper
Interest on Reserves and Arbitrage in Post-Crisis Money Markets

In this note, we use confidential, daily data on wholesale unsecured borrowing and reserve balances to empirically document several salient features of IOR arbitrage trades.
FEDS Notes , Paper 2018-03-01-1

Discussion Paper
Shining a Light on the Shadows: Dealer Funding and Internalization

In this note, we use new confidential supervisory data to take a first look at the practice of internalization and examine some of its implications.
FEDS Notes , Paper 2019-12-20


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