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Working Paper
Assessing bankruptcy reform in a model with temptation and equilibrium default
Nakajima, Makoto (2015-03-09)
A life-cycle model with equilibrium default in which consumers with and without temptation coexist is constructed to evaluate the 2005 bankruptcy law reform and other counterfactual reforms. The calibrated model indicates that the 2005 bankruptcy reform achieves its goal of reducing the number of bankruptcy filings, as seen in the data, but at the cost of loss in social welfare. The creditor-friendly reform provides borrowers with a stronger commitment to repay and thus yields lower default premia and better consumption smoothing. However, those who borrow and default due to temptation or ...
Working Papers , Paper 15-12

Working Paper
Business complexity and risk management: evidence from operational risk events in U. S. bank holding companies
Wang, Jianlin; Chernobai, Anna; Ozdagli, Ali K. (2016-10-01)
How does business complexity affect risk management in financial institutions? The commonly used risk measures rely on either balance-sheet or market-based information, both of which may suffer from identification problems when it comes to answering this question. Balance-sheet measures, such as return on assets, capture the risk when it is realized, while empirical identification requires knowledge of the risk when it is actually taken. Market-based measures, such as bond yields, not only ignore the problem that investors are not fully aware of all the risks taken by management due to ...
Working Papers , Paper 16-16

Report
The risk of fire sales in the tri-party repo market
McAndrews, James J.; Martin, Antoine; McLaughlin, Susan; Begalle, Brian (2013-05-01)
This paper studies the risk of "fire sales" in the tri-party repo market, a large and important market where securities dealers find short-term funding for a substantial portion of their own and their clients' assets. We distinguish between fire sales of assets by a dealer who, facing a run that could lead to default, sells securities to generate liquidity, and fire sales of assets by repo investors after a dealer's default has occurred. While fire sales do cause damage no matter how they arise, the tools available to lessen the harm from the two types of fire sales are different. We find ...
Staff Reports , Paper 616

Working Paper
The Bank Lending Channel Is Back
Spiegel, Mark M. (2025-02-11)
The period following the global financial crisis was marked by low interest rates and low responsiveness of bank lending to monetary policy. This led some to conclude that the bank lending channel for monetary policy to influence economic activity had weakened. This paper revisits the responsiveness of the bank lending channel using a bank-level panel of US Call Report data and updated measures of U.S. monetary policy shocks. Results indicate that the efficacy of the bank lending channel increased over our sample period. We find tepid responses in bank lending to monetary shocks from 2012H1 ...
Working Paper Series , Paper 2025-04

Report
COVID Response: The Municipal Liquidity Facility
Haughwout, Andrew F.; Hyman, Benjamin; Shachar, Or (2021-09-01)
At the onset of the COVID-19 pandemic, state and local governments were among the sectors expected to experience the most severe distress. The combination of a sharply deteriorating revenue picture, a pressing need for additional expenditures, delays in the receipt of substantial taxes owed, and an inability to access the financial markets raised serious concerns among many observers about the ability of state and local governments to meet their public service delivery responsibilities. In April 2020, the Federal Reserve announced the establishment of the Municipal Liquidity Facility (MLF) to ...
Staff Reports , Paper 985

Working Paper
Persistent Effects of the Paycheck Protection Program and the PPPLF on Small Business Lending
Dufresne, Lora; Spiegel, Mark M. (2024-08-07)
Using bank-level U.S. Call Report data, we examine the longer-term effects of the Paycheck Protection Program (PPP) and the PPP Liquidity Facility on small business (SME) lending. Our sample runs through the end of 2023H1, by which time almost all PPP loans were forgiven or repaid. To identify a causal impact of program participation, we instrument based on historical bank relationships with the Small Business Administration and the Federal Reserve discount window prior to the onset of the pandemic. Elevated bank participation in both programs was positively associated with a substantial ...
Working Paper Series , Paper 2024-26

Working Paper
Primer on the Forward-Looking Analysis of Risk Events (FLARE) Model: A Top-Down Stress Test Model
Correia, Sergio A.; Kiernan, Kevin F.; Seay, Matthew P.; Vojtech, Cindy M. (2020-02-13)
This technical note describes the Forward-Looking Analysis of Risk Events (FLARE) model, which is a top-down model that helps assess how well the banking system is positioned to weather exogenous macroeconomic shocks. FLARE estimates banking system capital under varying macroeconomic scenarios, time horizons, and other systemic shocks.
Finance and Economics Discussion Series , Paper 2020-015

Working Paper
The Decline in Asset Return Predictability and Macroeconomic Volatility
Qian, Charles; Hsu, Alex; Palomino, Francisco J. (2017-05)
We document strong U.S. stock and bond return predictability from several macroeconomic volatility series before 1982, and a significant decline in this predictability during the Great Moderation. These findings are robust to alternative empirical specifications and out-of-sample tests. We explore the predictability decline using a model that incorporates monetary policy and shocks with time-varying volatility. The decline is consistent with changes in both policy and shock dynamics. While an increase in the response to inflation in the interest-rate policy rule decreases volatility, more ...
Finance and Economics Discussion Series , Paper 2017-050

Working Paper
Evaluating the Information Value for Measures of Systemic Conditions
Oet, Mikhail V.; Dooley, John; Sarlin, Peter; Gramlich, Dieter; Ong, Stephen J. (2015-08-06)
Timely identification of coincident systemic conditions and forward-looking capacity to anticipate adverse developments are critical for macroprudential policy. Despite clear recognition of these factors in literature, an evaluation methodology and empirical tests for the information value of coincident measures are lacking. This paper provides a twofold contribution to the literature: (i) a general-purpose evaluation framework for assessing information value for measures of systemic conditions, and (ii) an empirical assessment of the information value for several alternative measures of US ...
Working Papers (Old Series) , Paper 1513

Working Paper
Inferring Term Rates from SOFR Futures Prices
Park, Yang-Ho; Heitfield, Erik (2019-03-05)
The Alternative Reference Rate Committee, a group of private-sector market participants convened by the Federal Reserve, has recommended that markets transition to the use of the Secured Overnight Financing Rate (SOFR) in financial contracts that currently reference US dollar LIBOR. This paper examines the feasibility of using SOFR futures prices to construct forward-looking term reference rates that are conceptually similar to the term LIBOR rates commonly used in loan contracts. We show that futures-implied term SOFR rates have closely tracked federal funds OIS rates over the eight months ...
Finance and Economics Discussion Series , Paper 2019-014

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