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Discussion Paper
Preemptive Runs and the Offshore U.S. Dollar Money Market Funds Industry
Cipriani, Marco; La Spada, Gabriele (2021-11-22)
In March 2020, U.S. dollar-denominated prime money market funds (MMFs) suffered heavy outflows as concerns about the COVID-19 pandemic increased in the United States and Europe. Investors redeemed their shares en masse not only from funds domiciled in the United States (“domestic”) but also from offshore funds. In this post, we use differences in the regulatory regimes of domestic and offshore funds to identify the impact of the redemption gates and liquidity fees recently introduced as part of MMF industry reforms in both the United States and Europe.
Liberty Street Economics , Paper 20211122

Discussion Paper
Global Asset Prices and Taper Tantrum Revisited
Groen, Jan J. J. (2014-12-08)
Global asset market developments during the summer of 2013 have been attributed to changes in the outlook for U.S. monetary policy, starting with former Chairman Bernanke’s May 22 comments concerning future curtailing of the Federal Reserve’s asset purchase programs. A previous post found that the signal of a possible change in U.S. monetary policy coincided with an increase in global risk aversion which put downward pressure on global asset prices. This post revisits this episode by measuring the impact of changes in Fed’s expected policy rate path and in the economic outlook on the ...
Liberty Street Economics , Paper 20141208

Discussion Paper
The Final Crisis Chronicle: The Panic of 1907 and the Birth of the Fed
Narron, James; Morgan, Donald P. (2016-11-18)
The panic of 1907 was among the most severe we’ve covered in our series and also the most transformative, as it led to the creation of the Federal Reserve System. Also known as the “Knickerbocker Crisis,” the panic of 1907 shares features with the 2007-08 crisis, including “shadow banks” in the form high-flying, less-regulated trusts operating beyond the safety net of the time, and a pivotal “Lehman moment” when Knickerbocker Trust, the second-largest trust in the country, was allowed to fail after J.P. Morgan refused to save it.
Liberty Street Economics , Paper 20161118

Discussion Paper
Which Dealers Borrowed from the Fed’s Lender-of-Last-Resort Facilities?
Sarkar, Asani; Hrung, Warren B.; Fleming, Michael J.; Acharya, Viral V. (2017-05-10)
During the 2007-08 financial crisis, the Fed established lending facilities designed to improve market functioning by providing liquidity to nondepository financial institutions—the first lending targeted to this group since the 1930s. What was the financial condition of the dealers that borrowed from these facilities? Were they healthy institutions behaving opportunistically or were they genuinely distressed? In published research, we find that dealers in a weaker financial condition were more likely to participate than healthier ones and tended to borrow more. Our findings reinforce the ...
Liberty Street Economics , Paper 20170510

Discussion Paper
Intraday Liquidity Flows
Braun, Michele; Copeland, Adam; Herlach, Alexa; Mithal, Radhika (2012-08-06)
Transactions denominated in U.S. dollars flow around the clock and around the globe, filling the pipelines that support commerce. On a typical day, more than $14 trillion of dollar-denominated payments is routed through the banking system. Critical to a well-functioning economy are the timing and smooth flow of dollars for large-value transactions and the infrastructure that enables that dollar flow. This financial market infrastructure provides essential economic services??plumbing? for the economy?and is made up of a variety of entities. In this post, we describe this financial market ...
Liberty Street Economics , Paper 20120806

Discussion Paper
Introducing a Series on the Evolution of Banks and Financial Intermediation
Cetorelli, Nicola (2012-07-16)
It used to be simple: Asked how to describe financial intermediation, you would just mention the word “bank.” Then things got complicated. As a result of innovation and legal and regulatory changes, financial intermediation has evolved in a way that invites us to question whether it revolves around banks anymore. The centerpiece of modern intermediation is the advent and growth of asset securitization: loans do not need to reside on the originator’s balance sheet until maturity any longer, but they can instead be packaged into securities and sold to investors. With securitization, ...
Liberty Street Economics , Paper 20120716

Discussion Paper
Stabilizing the Tri-Party Repo Market by Eliminating the “Unwind”
Martin, Antoine (2011-07-20)
On July 6, 2011, the Task Force on Tri-Party Repo Infrastructure—an industry group sponsored by the New York Fed—released a Progress Report in which it reaffirmed the goal of eliminating the wholesale “unwind” of repos (and the requisite extension of more than a trillion dollars of intraday credit by repo clearing banks), but acknowledged unspecified delays in achieving that goal. The “unwind” is the settlement of repos that currently takes place each morning and replaces credit from investors with credit from the clearing banks. As I explain in this post, by postponing settlement ...
Liberty Street Economics , Paper 20110720

Discussion Paper
The Impact of the Corporate Credit Facilities
Boyarchenko, Nina; Kovner, Anna; Shachar, Or (2020-10-01)
American companies have raised almost $1 trillion in the U.S. corporate bond market since March. If companies had been unable to refinance those bonds, their inability to repay may have led to an immediate default on all of their obligations, creating a cascade of defaults and layoffs. Based on Compustat data, an inability to access public bond markets could have affected companies employing more than 16 million people. In this post, we document the impact of the Primary Market and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) on bond market functioning, summarizing a ...
Liberty Street Economics , Paper 20201001

Discussion Paper
Changes in the Returns to Market Making
Vogt, Erik; Fleming, Michael J.; Adrian, Tobias; Shachar, Or; Stackman, Daniel (2015-10-07)
Since the financial crisis, major U.S. banking institutions have increased their capital ratios in response to tighter capital requirements. Some market analysts have asserted that the higher capital and liquidity requirements are driving up the costs of market making and reducing market liquidity. If regulations were, in fact, increasing the cost of market making, one would expect to see a rise in the expected returns to that activity. In this post, we estimate market-making returns in equity and corporate bond markets to assess the impact of regulations.
Liberty Street Economics , Paper 20151007

Discussion Paper
Insider Networks
Erol, Selman; Lee, Michael Junho (2020-06-25)
Modern-day financial systems are highly complex, with billions of exchanges in information, assets, and funds between individuals and institutions. Though daunting to operationalize, regulating these transmissions may be desirable in some instances. For example, securities regulators aim to protect investors by tracking and punishing insider trading. Recent evidence shows that insiders have formed sophisticated networksthat enable them to pursue activities outside the purview of regulatory oversight. In understanding the cat-and-mouse game between regulators and insiders, a key consideration ...
Liberty Street Economics , Paper 20200625

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