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Working Paper
Outside Lending in the NYC Call Loan Market
Tallman, Ellis W.; Moen, Jon R. (2014-08-27)
Before the Panic of 1907 the large New York City banks were able to maintain the call loan market?s liquidity during panics, but the rise in outside lending by trust companies and interior banks in the decade leading up the panic weakened the influence of the large banks. Creating a reliable source of liquidity and reserves external to the financial market like a central bank became obvious after the panic. The lack of a lender of last resort for investment banks engaged in bank-like activities during the crisis of 2007-09 revealed a similar need for an external liquidity source.
Working Papers (Old Series) , Paper 1408

Working Paper
Did bank borrowers benefit from the TARP program : the effects of TARP on loan contract terms
Makaew, Tanakorn; Berger, Allen N.; Roman, Raluca (2015-09-01)
We study the effects of the Troubled Asset Relief Program (TARP) on loan contract terms to businesses borrowing from recipient banks. Using a difference-in-difference analysis, we find that TARP led to more favorable terms to these borrowers in all five contract terms studied ? loan amounts, spreads, maturities, collateral, and covenants. This suggests recipient banks' borrowers benefited from TARP. These findings are statistically and economically significant, and are robust to dealing with potential endogeneity issues and other checks. {{p}} The contract term improvements are concentrated ...
Research Working Paper , Paper RWP 15-11

Report
Discussion of “Systemic Risk and the Solvency-Liquidity Nexus of Banks”
Adrian, Tobias (2015-04-01)
Pierret (2015) presents empirical analysis of the solvency-liquidity nexus for the banking system, documenting that a shock to the level of banks? solvency risk is followed by lower short-term debt. Conversely, higher short-term debt Granger-causes higher solvency risk. These results point toward a tight interaction between solvency and liquidity risk over time. My comments are threefold. First, I suggest improving the identification of shocks in Pierret?s vector autoregressive setup. Second, I caution against using the quantitative results as the basis for setting policy. Third, I recommend ...
Staff Reports , Paper 722

Working Paper
Peer Pressure: Social Interaction and the Disposition Effect
Heimer, Rawley (2016-07-14)
Social interaction contributes to some traders? disposition effect. New data from an investment-specific social network linked to individual-level trading records builds evidence of this connection. To credibly estimate causal peer effects, I exploit the staggered entry of retail brokerages into partnerships with the social trading web platform and compare trader activity before and after exposure to these new social conditions. Access to the social network nearly doubles the magnitude of a trader?s disposition effect. Traders connected in the network develop correlated levels of the ...
Working Papers (Old Series) , Paper 1618

Journal Article
The FHA and the GSEs as countercyclical tools in the mortgage markets
Sherlund, Shane M.; Passmore, Wayne (2018-24-03)
The authors examine the connection between government mortgage programs and economic outcomes during and after the financial crisis. They find a strong correlation between counties that participated more heavily in Federal Housing Administration (FHA)/Veterans Affairs (VA) and government-sponsored enterprise (GSE) mortgage lending before the crisis and better economic outcomes during and after the crisis. Although the financial crisis was a substantial shock to all counties, those more reliant on FHA/VA or GSE lending experienced smaller increases in unemployment rates; smaller declines in ...
Economic Policy Review , Issue 24-3 , Pages 28-40

Journal Article
What makes large bank failures so messy and what should be done about it?
Morgan, Donald P.; Yorulmazer, Tanju; Santos, Joao A. C.; McAndrews, James J. (2014-12)
This study argues that the defining feature of large and complex banks that makes their failures messy is their reliance on runnable financial liabilities. These liabilities confer liquidity or money-like services that may be impaired or destroyed in bankruptcy. To make large bank failures more orderly, the authors recommend that systemically important bank holding companies be required to issue ?bail-in-able? long-term debt that converts to equity in resolution. This reassures holders of uninsured liabilities that their claims will be honored in resolution, making them less likely to run. In ...
Economic Policy Review , Issue Dec , Pages 229-244

Discussion Paper
Banks Runs and Information
Anderson, Haelim; Copeland, Adam (2023-05-12)
The collapse of Silicon Valley Bank (SVB) and Signature Bank (SB) has raised questions about the fragility of the banking system. One striking aspect of these bank failures is how the runs that preceded them reflect risks and trade-offs that bankers and regulators have grappled with for many years. In this post, we highlight how these banks, with their concentrated and uninsured deposit bases, look quite similar to the small rural banks of the 1930s, before the creation of deposit insurance. We argue that, as with those small banks in the early 1930s, managing the information around SVB and ...
Liberty Street Economics , Paper 20230512

Working Paper
The Role of Dispersed Information in Pricing Default: Evidence from the Great Recession
Macchiavelli, Marco; Brancati, Emanuele (2015-08-13)
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
Measuring capital adequacy supervisory stress tests in a Basel world
Wall, Larry D. (2013-12-01)
The United States is now committed to using two relatively sophisticated approaches to measuring capital adequacy: Basel III and stress tests. This paper shows how stress testing could mitigate weaknesses in the way Basel III measures credit and interest rate risk, the way it measures bank capital, and the way it creates countercyclical capital buffers. However, this paper also emphasizes the extent to which stress tests add value will depend upon the exercise of supervisor discretion in the design of stress scenarios. Whether supervisors will use this discretion more effectively than they ...
FRB Atlanta Working Paper , Paper 2013-15

Working Paper
The Financial Stability Implications of Digital Assets
Scotti, Chiara; Carapella, Francesca; Rappoport, David E.; Baughman, Garth; Swem, Nathan; Vardoulakis, Alexandros (2022-08)
The value of assets in the digital ecosystem has grown rapidly, amid periods of high volatility. Does the digital financial system create new potential challenges to financial stability? This paper explores this question using the Federal Reserve’s framework for analyzing vulnerabilities in the traditional financial system. The digital asset ecosystem has recently proven itself highly fragile. However adverse digital asset markets shocks have had limited spillovers to the traditional financial system. Currently, the digital asset ecosystem does not provide significant financial services ...
Finance and Economics Discussion Series , Paper 2022-058

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