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Discussion Paper
How (Un-)Informed Are Depositors in a Banking Panic? A Lesson from History
Blickle, Kristian S.; Brunnermeier, Markus K.; Luck, Stephan (2022-02-17)
How informed or uninformed are bank depositors in a banking crisis? Can depositors anticipate which banks will fail? Understanding the behavior of depositors in financial crises is key to evaluating the policy measures, such as deposit insurance, designed to prevent them. But this is difficult in modern settings. The fact that bank runs are rare and deposit insurance universal implies that it is rare to be able to observe how depositors would behave in absence of the policy. Hence, as empiricists, we are lacking the counterfactual of depositor behavior during a run that is undistorted by the ...
Liberty Street Economics , Paper 20220217

Discussion Paper
Becoming More Alike? Comparing Bank and Federal Reserve Stress Test Results
Hirtle, Beverly; McKay, Eric; Kovner, Anna (2014-07-21)
Stress tests have become an important method of assessing whether financial institutions have enough capital to operate in bad economic conditions. Under the provisions of the Dodd-Frank Act, both the Federal Reserve and large U.S. bank holding companies (BHCs) are required to do annual stress tests and to disclose these results to the public. While the BHCs’ and the Federal Reserve’s projections are made under the same macroeconomic scenario, the results differ, primarily because of differences in the models used to make the projections. In this post, we look at the 2014 stress test ...
Liberty Street Economics , Paper 20140721

Discussion Paper
Measuring the Forest through the Trees: The Corporate Bond Market Distress Index
Boyarchenko, Nina; Kovner, Anna; Shachar, Or; Crump, Richard K. (2021-02-22)
With more than $10.4 trillion outstanding as of Q3:2020, the U.S. corporate bond market is a significant source of funding for most large U.S. corporations. While prior literature offers a variety of measures to capture different aspects of corporate bond market functioning, there is little consensus on how to use those measures to identify periods of distress in the market as a whole. In this post, we describe the U.S. Corporate Bond Market Distress Index (CMDI), which offers a single measure to quantify joint dislocations in the primary and secondary corporate bond markets. As detailed in a ...
Liberty Street Economics , Paper 20210222

Journal Article
Community Banks' Ongoing Role in the U.S. Economy
Lytle, Brent; Summers, Chris; Ziadeh, Stephanie; Hanauer, Matt (2021-06-24)
In recent decades, both the number of community banks and their share of U.S. banking assets have steadily declined, raising questions about the future of community banking. In addition to competitive pressures from larger banking organizations, community banks face growing challenges from broader economic consolidation, changing demographics, and rapidly advancing financial technologies.Matt Hanauer, Brent Lytle, Chris Summers, and Stephanie Ziadeh explore the role of community banks in the U.S. economy, the challenges they face, and their outlook for the future. They find that despite their ...
Economic Review , Volume 106 , Issue no.2 , Pages 5-49

Discussion Paper
What Explains Shareholder Payouts by Large Banks?
Hirtle, Beverly (2017-10-18)
On June 28, the Federal Reserve released the latest results of the Comprehensive Capital Analysis and Review (CCAR), the supervisory program that assesses the capital adequacy and capital planning processes of large, complex banking companies. The Fed did not object to any of the banks? capital plans, an outcome that was widely heralded as a signal that these banks would be able to increase payouts to their shareholders. And in fact, immediately following the release of the CCAR results, several large banks announced substantial increases in quarterly dividends and record-sized share ...
Liberty Street Economics , Paper 20171018

Discussion Paper
What Is Atomic Settlement?
Lee, Michael Junho; Martin, Antoine; Müller, Benjamin (2022-11-07)
Distributed ledger technologies (DLTs) have garnered growing interest in recent years and are making inroads into traditional finance. One purported benefit of DLTs is their ability to bring about “atomic” settlement. Indeed, several recent private sector projects (SDX, Fnality, HQLAx) aim to do just that. But what exactly is atomic settlement? In this post, we explain that atomic settlement, as it is often defined, combines two distinct properties: instant settlement and simultaneous settlement, which should be kept separate.
Liberty Street Economics , Paper 20221107

Discussion Paper
Global Banks and Their Internal Capital Markets during the Crisis
Cetorelli, Nicola; Goldberg, Linda S. (2011-07-11)
As financial markets have become increasingly globalized, banks have developed growing networks of branches and subsidiaries in foreign countries. This expansion of banking across borders is changing the way banks manage their balance sheets, and the ways home markets and foreign markets respond to disturbances to financial markets. Based on our recent research, this post shows how global banks used their foreign affiliates for accessing scarce dollars during the financial crisis—a liquidity strategy that helped transmit shocks internationally while reducing some of the consequences in the ...
Liberty Street Economics , Paper 20110711

Discussion Paper
Just Released: What Do Banking Supervisors Do?
Lucca, David O.; Hirtle, Beverly (2015-05-28)
In most developed economies, banking is among the most regulated and supervised sectors. While 'regulation' and 'supervision' are often used interchangeably, these two activities are distinct. Banking supervision is a complement to regulation, but its scope is much broader than simply ensuring that an institution is in compliance with regulation. Despite the importance of supervision, information about it is often limited, both because of the heavy reliance upon banks' confidential information and because many supervisory activities and actions are themselves confidential. In a recently ...
Liberty Street Economics , Paper 20150528

Discussion Paper
The Fed’s Balance Sheet Runoff and the ON RRP Facility
Cipriani, Marco; Clouse, James A.; Logan, Lorie; Martin, Antoine; Riordan, Will (2022-04-11)
A 2017 Liberty Street Economics post described the balance sheet effects of the Federal Open Market Committee’s decision to cease reinvestments of maturing securities—that is, the mechanics of the Federal Reserve’s balance sheet “runoff.” At the time, the overnight reverse repo (ON RRP) facility was fairly small (less than $200 billion for most of July 2017) and was not mentioned in the post for the sake of simplicity. Today, by contrast, take-up at the ON RRP facility is much larger (over $1.5 trillion for most of 2022). In this post, we update the earlier analysis and describe how ...
Liberty Street Economics , Paper 20220411

Working Paper
Financial Institutions’ Business Models and the Global Transmission of Monetary Policy
Bonner, Clemens; Haan, Leo de; Stebunovs, Viktors; Frost, Jon; Correa, Ricardo; Argimon, Isabel; Duijm, Patty; Haan, Jakob de (2018-05-29)
Global financial institutions play an important role in channeling funds across countries and, therefore, transmitting monetary policy from one country to another. In this paper, we study whether such international transmission depends on financial institutions' business models. In particular, we use Dutch, Spanish, and U.S. confidential supervisory data to test whether the transmission operates differently through banks, insurance companies, and pension funds. We find marked heterogeneity in the transmission of monetary policy across the three types of institutions, across the three banking ...
International Finance Discussion Papers , Paper 1228

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