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Working Paper
Mapping Heat in the U.S. Financial System
Palumbo, Michael G.; Lee, Seung Jung; Warusawitharana, Missaka; Aikman, David; Kiley, Michael T. (2015-06-24)
We provide a framework for assessing the build-up of vulnerabilities in the U.S. financial system. We collect forty-four indicators of financial and balance-sheet conditions, cutting across measures of valuation pressures, nonfinancial borrowing, and financial-sector health. We place the data in economic categories, track their evolution, and develop an algorithmic approach to monitoring vulnerabilities that can complement the more judgmental approach of most official-sector organizations. Our approach picks up rising imbalances in the U.S. financial system through the mid-2000s, presaging ...
Finance and Economics Discussion Series , Paper 2015-59

Working Paper
Central bank preparedness for market-functioning asset purchases as a consideration for long-run balance sheet composition
Edge, Rochelle M.; Li, Dan (2025-09-05)
This paper proposes an approach to enhance the Federal Reserve's readiness to undertake market-functioning asset purchases during Treasury market disruptions. It notes that by tilting the SOMA Treasury portfolio toward bills rather than maintaining a maturity structure proportionate to that of outstanding Treasury debt—often viewed as the most neutral portfolio—the Fed can create a larger volume of reinvestments each month that can serve as a “war chest” for undertaking market-functioning asset purchases. This structure of the SOMA Treasury portfolio enables market-functioning asset ...
Finance and Economics Discussion Series , Paper 2025-077

Journal Article
Macroprudential policy: a case study from a tabletop exercise
Adrian, Tobias; Yang, Emily; de Fontnouvelle, Patrick; Zlate, Andrei (2017-23-01)
Since the global financial crisis of 2007-09, policymakers and academics have advocated the use of prudential policy tools to reduce the risks that could inhibit the financial sector?s ability to intermediate credit. The use of such tools in the service of financial stability is often called macroprudential policy. This article describes a ?tabletop? exercise in which Federal Reserve Bank presidents were presented with a hypothetical scenario of overheating markets and asked to consider the effectiveness of macroprudential policy approaches in averting or moderating the financial disruptions ...
Economic Policy Review , Issue 23-1 , Pages 1-30

Working Paper
Firm Entry and Employment Dynamics in the Great Recession
Siemer, Michael (2014-07-30)
The 2007-2009 recession is characterized by: a large drop in employment, an unprecedented decline in firm entry, and a slow recovery. Using confidential firm-level data, I show that financial constraints reduced employment growth in small relative to large firms by 4.8 to 10.5 percentage points. The effect of financial constraints is robust to controlling for aggregate demand and is particularly strong in small young firms. I show in a heterogeneous firms model with endogenous firm entry and financial constraints that a large financial shock results in a long-lasting recession caused by a ...
Finance and Economics Discussion Series , Paper 2014-56

Journal Article
GSE guarantees, financial stability, and home equity accumulation
Passmore, Wayne; von Hafften, Alexander H. (2018-24-03)
Before 2008, the government?s ?implicit guarantee? of the securities issued by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac led to practices by these institutions that threatened financial stability. In 2008, the Federal Housing Finance Agency placed these GSEs into conservatorship. Conservatorship was intended to be temporary but has now reached its tenth year, and policymakers continue to weigh options for reform. In this article, the authors assess both implicit and explicit government guarantees for the GSEs. They argue that adopting a legislatively defined ...
Economic Policy Review , Issue 24-3 , Pages 11-27

Report
Global standards for liquidity regulation
Peek, Joe; Liebmann, Eva (2015-07-01)
Liquidity risk has received increased attention recently, especially in light of the 2007 - 2009 financial crisis, when banks' extensive reliance on short-term funding, maturity mismatches between assets and liabilities, and insufficient liquidity buffers made them quite susceptible to liquidity risk. To mitigate such risk, the Basel Committee on Banking Supervision (BCBS) introduced an improved global capital framework and new global liquidity standards for banks in December 2010 in the form of the new Basel Accord (Basel III). This brief offers insights from the crisis experience, ...
Current Policy Perspectives , Paper 15-3

Report
A private lender cooperative model for residential mortgage finance
Wright, Joshua; Tracy, Joseph; Mosser, Patricia C.; Vickery, James; Dechario, Toni (2010-08-01)
We describe a set of six design principles for the reorganization of the U.S. housing finance system and apply them to one model for replacing Fannie Mae and Freddie Mac that has so far received frequent mention but little sustained analysis ? the lender cooperative utility. We discuss the pros and cons of such a model and propose a method for organizing participation in a mutual loss pool and an explicit, priced government insurance mechanism. We also discuss how these principles and this model are consistent with preserving the ?to-be-announced,? or TBA, market ? particularly if the ...
Staff Reports , Paper 466

Working Paper
Quantifying Risks to Sovereign Market Access: Methods and Challenges
Erce, Aitor; Zigraiova, Diana; Jiang, Xu (2020-02-10)
In this paper we use data from the euro area to study episodes when sovereigns lose market access. We construct a detailed dataset with potential indicators of market access tensions, and evaluate their ability to forecast episodes when market access is lost, using various econometric approaches. We find that factors associated with high market access tensions are not limited to financial markets, but also encompass developments in global demand, macroeconomic conditions and the fiscal stance. Using the top-performing indicators, we construct a number of market tension indices and use them as ...
Globalization Institute Working Papers , Paper 377

Working Paper
The Transmission of the Financial Crisis in 1907: An Empirical Investigation
Tallman, Ellis W.; Moen, Jon R. (2014-09-03)
Using an extensive high-frequency data set, we investigate the transmission of financial crisis specifically focusing on the Panic of 1907, the final severe panic of the National Banking Era (1863-1913). We trace the transmission of the crisis from New York City trust companies to the New York City national banks through direct and indirect interconnections. Trust companies held cash balances at national banks, and these balances were liquidated as trust companies suffered depositor runs. Secondly, trust companies and national banks were notable creditors to the New York Stock Exchange; when ...
Working Papers (Old Series) , Paper 1409

Working Paper
Income Inequality, Financial Crises, and Monetary Policy
Sim, Jae W.; Cairó, Isabel (2018-07-19)
We construct a general equilibrium model in which income inequality results in insufficient aggregate demand, deflation pressure, and excessive credit growth by allocating income to agents featuring low marginal propensity to consume, and if excessive, can lead to an endogenous financial crisis. This economy generates distributions for equilibrium prices and quantities that are highly skewed to the downside due to financial crises and the liquidity trap. Consequently, symmetric monetary policy rules designed to minimize fluctuations around fixed means become inefficient. A simultaneous ...
Finance and Economics Discussion Series , Paper 2018-048

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