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Discussion Paper
How the Fed Smoothed Quarter-End Volatility in the Fed Funds Market
Entz, Alex; McGowan, John; Sarkar, Asani (2016-03-28)
The federal funds market is an important source of short-term funding for U.S. banks. In this market, banks borrow reserves on an unsecured basis from other banks and from government-sponsored enterprises, typically overnight. Before the financial crisis, the Federal Reserve implemented monetary policy by targeting the overnight fed funds rate and then adjusting the supply of bank reserves every day to keep the rate close to the target. Before the crisis, reserves were generally in scarce supply, which periodically caused temporary spikes in the fed funds rate during times of high demand, ...
Liberty Street Economics , Paper 20160328

Discussion Paper
Pick Your Poison: How Money Market Funds Reacted to Financial Stress in 2011
Krishnan, Neel; Martin, Antoine; Sarkar, Asani (2013-03-06)
The summer of 2011 was an unsettling period for financial markets. In the United States, Congress was unable to agree to terms for raising the debt ceiling until August, creating considerable uncertainty over whether the government would be forced to default on its debt. In Europe, the borrowing costs of some peripheral countries increased dramatically, raising questions about the health of some of the largest banks. In this post, we analyze data recently made public by the Securities and Exchange Commission (SEC) to see how the U.S. money market mutual fund (MMF) industry reacted to these ...
Liberty Street Economics , Paper 20130306

Report
Dealers and the Dealer of Last Resort: Evidence from MBS Markets in the COVID-19 Crisis
Song, Zhaogang; Sarkar, Asani; Liu, Haoyang; Chen, Jiakai (2020-07-01)
We study price dislocations and liquidity provision by dealers and the Federal Reserve (Fed) as the “dealer of last resort” in agency MBS markets during the COVID-19 crisis. As customers sold MBS to “scramble for cash,” dealers provided liquidity by taking inventory in the cash market and hedging inventory risk in the forward market. The cash and forward prices diverged significantly beyond the difference in the quality of MBS traded on the two markets. The Fed first facilitated dealers’ inventory hedging and then took holdings off dealers’ inventory directly. The price ...
Staff Reports , Paper 933

Conference Paper
Financial innovation and corporate default rates
Maurer, Samuel; Wei, Chenyang; Nguyen, Hoai-Luu; Sarkar, Asani (2009)
Corporate default rates have been unusually low in recent years, both relative to historical rates and to forecasts of economists and ratings agencies. We examine the hypothesis that financial innovation has provided new financing options for distressed firms, which are consequently able to postpone or avoid default. Consistent with this hypothesis, we find that in recent years the incidence of early default has decreased, even after controlling for business cycle effects. Next, we estimate a model for predicting aggregate monthly defaults and find that, if financial innovation is ignored, ...
Proceedings , Issue Jan

Journal Article
The global financial crisis and offshore dollar markets
Sarkar, Asani; Nguyen, Hoai-Luu; Hrung, Warren B.; Coffey, Niall (2009)
Facing a shortage of U.S. dollars and a growing need to support their dollar-denominated assets during the financial crisis, international firms increasingly turned to the foreign exchange swap market and other secured funding sources. An analysis of the ensuing strains in the swap market shows that the dollar "basis"--the premium international institutions pay for dollar funding--became persistently large and positive, chiefly as a result of the higher funding costs paid by smaller firms and non-U.S. banks. The widening of the basis underscores the severity and breadth of the crisis as ...
Current Issues in Economics and Finance , Volume 15 , Issue Oct

Discussion Paper
Why Did the Recent Oil Price Declines Affect Bond Prices of Non-Energy Companies?
Sarkar, Asani; Li, Brandon (2016-10-05)
Oil prices plunged 65 percent between July 2014 and December of the following year. During this period, the yield spread?the yield of a corporate bond minus the yield of a Treasury bond of the same maturity?of energy companies shot up, indicating increased credit risk. Surprisingly, the yield spread of non?energy firms also rose even though many non?energy firms might be expected to benefit from lower energy?related costs. In this blog post, we examine this counterintuitive result. We find evidence of a liquidity spillover, whereby the bonds of more liquid non?energy firms had to be sold to ...
Liberty Street Economics , Paper 20161005

Discussion Paper
Did Subsidies to Too-Big-To-Fail Banks Increase during the COVID-19 Pandemic?
Sarkar, Asani (2021-02-11)
Once a bank grows beyond a certain size or becomes too complex and interconnected, investors often perceive that it is “too big to fail” (TBTF), meaning that if the bank were to become distressed, the government would likely bail it out. In a recent post, I showed that the implicit funding subsidies to systemically important banks (SIBs) declined, on average, after a set of reforms for eliminating TBTF perceptions was implemented. In this post, I discuss whether these subsidies increased again during the COVID-19 pandemic and, if so, whether the increase accrued to large firms in all ...
Liberty Street Economics , Paper 20210211

Discussion Paper
The Impact of Trade Reporting on the Interest Rate Derivatives Market
Sarkar, Asani; Jackson, John; Li, Ada; Fleming, Michael J.; Zobel, Patricia (2012-04-30)
In recent years, regulators in the United States and abroad have begun to strengthen regulations governing over-the-counter (OTC) derivatives trading, driven by concerns over the decentralized and opaque nature of current trading practices. For example, the Dodd-Frank Act will require U.S.-based market participants to publicly report details of their interest rate derivatives (IRD) trades shortly after those transactions have been executed. Based on an analysis of new and detailed data on the trading activity of major dealers, this post discusses the possible costs and benefits of reporting ...
Liberty Street Economics , Paper 20120430

Journal Article
Financial amplification mechanisms and the Federal Reserve’s supply of liquidity during the crisis
Shrader, Jeffrey; Sarkar, Asani (2010)
New York Fed economists Asani Sarkar and Jeffrey Shrader examine the Federal Reserve?s recent liquidity actions in the context of studies on financial amplification mechanisms, whereby an initial financial sector shock triggers substantially larger shocks elsewhere in the sector and in the broader economy. Presented at "Central Bank Liquidity Tools and Perspectives on Regulatory Reform" a conference sponsored by the Federal Reserve Bank of New York, February 19-20, 2009.
Economic Policy Review , Volume 16 , Issue Aug , Pages 55-74

Journal Article
Components of U.S. financial sector growth, 1950-2013
Antill, Samuel; Sarkar, Asani; Hou, David (2014)
The U.S. financial sector grew steadily as a share of the total business sector from 1959 until the recent financial crisis, when the trend reversed. In this article, the authors develop measures based on firm-level data to estimate the size of the financial sector and its subsectors relative to the total business (financial and nonfinancial) sector over time. The analysis further sheds light on how these size measures are affected by a firm?s choice of financing (whether public or private), firm size, industry type, use of leverage, and regulation. The authors find that the relative size of ...
Economic Policy Review , Issue Dec , Pages 59-83

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