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Working Paper
Strategic Liquidity Mismatch and Financial Sector Stability
Silva, Andre (2019-11-25)
This paper examines whether banks strategically incorporate their competitors? liquidity mismatch policies when determining their own and how these collective decisions impact financial sector stability. Using a novel identification strategy exploiting the presence of partially overlapping peer groups, I show that banks? liquidity transformation activity is driven by that of their peers. These correlated decisions are concentrated on the asset side of riskier banks and are asymmetric, with mimicking occurring only when competitors are taking more risk. Accordingly, this strategic behavior ...
Finance and Economics Discussion Series , Paper 2019-082

Working Paper
Villains or Scapegoats? The Role of Subprime Borrowers in Driving the U.S. Housing Boom
Gerardi, Kristopher S.; Frame, W. Scott; Conklin, James; Liu, Haoyang (2020-05-19)
An expansion in mortgage credit to subprime borrowers is widely believed to have been a principal driver of the 2002–2006 U.S. house price boom. By contrast, this paper documents a robust, negative correlation between the growth in the share of purchase mortgages to subprime borrowers and house price appreciation at the county-level during this time. Using two different instrumental variables approaches, we also establish causal evidence that house price appreciation lowered the share of purchase loans to subprime borrowers. Further analysis using micro-level credit bureau data shows that ...
Working Papers , Paper 2013

Report
International Trade, Risk and the Role of Banks
Schmidt-Eisenlohr, Tim; Niepmann, Friederike (2013-09-01)
Banks play a critical role in international trade by providing trade finance products that reduce the risk of exporting. This paper employs two new data sets to shed light on the magnitude and structure of this business, which, as we show, is highly concentrated in a few large banks. The two principal trade finance instruments, letters of credit and documentary collections, covered about 10 percent of U.S. exports in 2012. They are preferred for larger transactions, which indicates the existence of substantial fixed costs in the provision and use of these instruments. Letters of credit are ...
Staff Reports , Paper 633

Working Paper
Consumer risk appetite, the credit cycle, and the housing bubble
Breeden, Joseph L.; Canals-Cerda, Jose J. (2016-02-18)
We explore the role of consumer risk appetite in the initiation of credit cycles and as an early trigger of the U.S. mortgage crisis. We analyze a panel data set of mortgages originated between the years 2000 and 2009 and follow their performance up to 2014. After controlling for all the usual observable effects, we show that a strong residual vintage effect remains. This vintage effect correlates well with consumer mortgage demand, as measured by the Federal Reserve Board?s Senior Loan Officer Opinion Survey, and correlates well to changes in mortgage pricing at the time the loan was ...
Working Papers , Paper 16-5

Working Paper
Monitoring Banking System Fragility with Big Data
Hale, Galina; Lopez, Jose A. (2017-09-15)
The need to monitor aggregate financial stability was made clear during the global financial crisis of 2008-2009, and, of course, the need to monitor individual financial firms from a microprudential standpoint remains. In this paper, we propose a procedure based on mixed-frequency models and network analysis to help address both of these policy concerns. We decompose firm-specific stock returns into two components: one that is explained by observed covariates (or fitted values), the other unexplained (or residuals). We construct networks based on the co-movement of these components. Analysis ...
Working Paper Series , Paper 2018-1

Working Paper
Bad Sovereign or Bad Balance Sheets? Euro Interbank Market Fragmentation and Monetary Policy, 2011-2015
Gabrieli, Silvia; Labonne, Claire (2018-07-12)
We measure the relative role of sovereign-dependence risk and balance sheet (credit) risk in euro area interbank market fragmentation from 2011 to 2015. We combine bank-to-bank loan data with detailed supervisory information on banks? cross-border and cross-sector exposures. We study the impact of the credit risk on banks? balance sheets on their access to, and the price paid for, interbank liquidity, controlling for sovereign-dependence risk and lenders? liquidity shocks. We find that (i) high non-performing loan ratios on the GIIPS portfolio hinder banks? access to the interbank market ...
Supervisory Research and Analysis Working Papers , Paper RPA 18-3

Journal Article
Unconventional Monetary Policy and International Interest Rate Spillovers
Dilts Stedman, Karlye (2020-10-15)
After the 2008 global financial crisis, advanced economies turned to unconventional monetary policies to provide additional monetary stimulus while short-term interest rates were constrained by their effective lower bound. However, the speed of economic recovery differed markedly among these economies, leading to differences in the timing and intensity of unconventional monetary policies across central banks. These differences may have generated “spillover effects” that undermined policy tightening in the United States after 2015.Karlye Dilts Stedman assesses whether monetary policies ...
Economic Review , Volume 105 , Issue no.2 , Pages 47-60

Working Paper
Did Doubling Reserve Requirements Cause the 1937-38 Recession? New Evidence on the Impact of Reserve Requirements on Bank Reserve Demand and Lending
Calomiris, Charles W.; Mason, Joseph R.; Wheelock, David C. (2022-05-04)
In 1936-37, the Federal Reserve doubled member banks' reserve requirements. Friedman and Schwartz (1963) famously argued that the doubling increased reserve demand and forced the money supply to contract, which they argued caused the recession of 1937-38. Using a new database on individual banks, we show that higher reserve requirements did not generally increase banks' reserve demand or contract lending because reserve requirements were not binding for most banks. Aggregate effects on credit supply from reserve requirement increases were therefore economically small and statistically zero.
Working Papers , Paper 2022-011

Report
The payment system benefits of high reserve balances
Kroeger, Alexander; McAndrews, James J. (2016-06-01)
The policy measures taken since the financial crisis have greatly expanded the size of the Federal Reserve?s balance sheet and have thus raised the level of aggregate bank reserves as well. Over the same period there has been a significant shift in the timing of payments made over the Federal Reserve?s Fedwire Funds Service toward earlier settlement. This paper documents this timing change and presents regression results suggesting that the increase in overall reserve balances explains the vast majority of this development. The paper also discusses the benefits of high aggregate reserve ...
Staff Reports , Paper 779

Working Paper
Credit scoring and loan default
Bhardwaj, Geetesh; Sengupta, Rajdeep (2015-02-01)
A metric of credit score performance is developed to study the usage and performance of credit scoring in the loan origination process. We examine the performance of origination FICO scores as measures of ex ante borrower creditworthiness using loan-level data on ex post performance of subprime mortgages. Parametric and nonparametric estimates of credit score performance reveal different trends, especially on originations with low credit scores. The data suggest a trend of increased emphasis on higher credit scores accompanying a trend of increased riskiness in other origination attributes. ...
Research Working Paper , Paper RWP 15-2

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