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Jel Classification:G19 

Journal Article
The Long and Short of It: The Post-Crisis Corporate CDS Market

The authors establish key stylized facts about the post-crisis evolution of trading and pricing of credit default swaps. Using supervisory contract-level data, they show that dealers became net buyers of credit protection starting in the second half of 2014, both through reducing the amount of protection they sell in the single-name market and switching to buying protection in the index market. More generally, they argue that considering simultaneous positions in different types of credit derivatives is crucial for understanding institutions’ decisions to participate in these markets and ...
Economic Policy Review , Volume 26 , Issue 3 , Pages 49

Working Paper
The Information Value of Past Losses in Operational Risk

Operational risk is a substantial source of risk for US banks. Improving the performance of operational risk models allows banks’ management to make more informed risk decisions by better matching economic capital and risk appetite, and allows regulators to enhance their understanding of banks’ operational risk. We show that past operational losses are informative of future losses, even after controlling for a wide range of financial characteristics. We propose that the information provided by past losses results from them capturing hard to quantify factors such as the quality of ...
Finance and Economics Discussion Series , Paper 2023-003

Report
The Long and Short of It: The Post-Crisis Corporate CDS Market

We establish key stylized facts about the post-crisis evolution of trading and pricing of credit default swaps. Using supervisory contract-level data, we document that dealers become net buyers of credit protection starting in the second half of 2014, both through reducing the amount of protection they sell in the single-name market and through switching to buying protection in the index market. More generally, we argue that considering simultaneous positions in different types of credit derivatives is crucial for understanding institutions? participation decisions and how these decisions ...
Staff Reports , Paper 879

Journal Article
The Commercial Paper Funding Facility

The Federal Reserve reestablished the Commercial Paper Funding Facility (CPFF 2020) in response to the disruptions in the commercial paper market triggered by the COVID-19 pandemic and subsequent economic shutdowns. The CPFF 2020 was designed to support market functioning and provide a liquidity backstop for the commercial paper market. This article provides an overview of the CPFF 2020, including detailing the facility’s design, documenting its usage, and describing its impact on commercial paper markets. In addition, the authors compare the market conditions and facility design in CPFF ...
Economic Policy Review , Volume 28 , Issue 1

Report
Counterparty risk in material supply contracts

This paper explores the sources of counterparty risk in material supply relationships. Using long-term supply contracts collected from SEC filings, we test whether three sources of counterparty risk?financial exposure, product quality risk, and redeployability risk?are priced in the equity returns of linked firms. Our results show that equity holders require compensation for exposure to all three sources of risk. Specifically, offering trade credit to counterparties and investing in relationship-specific assets increase the firm?s exposure to counterparty risk. Further, we show that contracts ...
Staff Reports , Paper 694

Working Paper
The Scarcity Value of Treasury Collateral: Repo Market Effects of Security-Specific Supply and Demand Factors

In the repo market, forward agreements are security-specific (i.e., there are no deliverable substitutes), which makes it an ideal place to measure the value of fluctuations in a security's available supply. In this study, we quantify the scarcity value of Treasury collateral by estimating the impact of security-specific demand and supply factors on the repo rates of all the outstanding U.S. Treasury securities. Our results indicate the existence of an economically and statistically significant scarcity premium, especially for shorter-term securities. The estimated scarcity effect is quite ...
Working Paper Series , Paper WP-2013-22

Working Paper
Identity, Identification and Identifiers : The Global Legal Entity Identifier System

Identity is a critical concept in the rational interactions of any set of objects involving subject-object relationships. The objects must be distinguished according to some framework in order for such relationships to have meaning. In the world of economic systems, relationships such as ownership and responsibility require specific parties to be fixed with a high degree of certainty. This need is particularly strong in financial markets, where transactions can take place in nanoseconds. This paper discusses a particular framework for defining economic actors, the Global Legal Entity ...
Finance and Economics Discussion Series , Paper 2016-103

Working Paper
Funding Liquidity Risk and the Cross-section of MBS Returns

This paper shows that funding liquidity risk is priced in the cross-section of excess returns on agency mortgage-backed securities (MBS). We derive a measure of funding liquidity risk from dollar-roll implied financing rates (IFRs), which reflect security-level costs of financing positions in the MBS market. We show that factors representing higher net MBS supply are generally associated with higher IFRs, or higher funding costs. In addition, we find that exposure to systematic funding liquidity shocks embedded in the IFRs is compensated in the cross-section of expected excess returns| agency ...
Finance and Economics Discussion Series , Paper 2016-052

Report
COVID Response: The Commercial Paper Funding Facility

The Federal Reserve reestablished the Commercial Paper Funding Facility (CPFF 2020) in response to the disruptions in the commercial paper market triggered by the COVID-19 pandemic and subsequent economic shutdowns. The CPFF 2020 was designed to support market functioning and provide a liquidity backstop for the commercial paper market. This paper provides an overview of the CPFF 2020, including detailing the facility’s design, documenting its usage, and describing its impact on commercial paper markets. In addition, we compare the market conditions and facility design in CPFF 2020 to that ...
Staff Reports , Paper 982

Report
COVID Response: The Primary and Secondary Corporate Credit Facilities

The Federal Reserve introduced the Primary Market Corporate Credit Facility (PMCCF) and the Secondary Market Corporate Credit Facility (SMCCF) in response to the severe disruptions in corporate bond markets triggered by the COVID-19 pandemic and subsequent economic shutdowns. The Corporate Credit Facilities (CCFs) were designed to work together to restore functioning of credit markets, with an overarching goal of facilitating credit provision to the non-financial corporate sector of the U.S. economy. This paper provides an overview of the CCFs, including detailing the facilities’ design, ...
Staff Reports , Paper 986

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