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Jel Classification:G28 

Report
Evaluating the information in the Federal Reserve stress tests

We present evidence that the Federal Reserve stress tests produce information about both the stress-tested bank holding companies and the overall state of the banking industry. Our evidence goes beyond a standard event study, which cannot differentiate between small abnormal returns and large, but opposite?signed, abnormal stock returns. We find that stress test disclosures are associated with significantly higher absolute abnormal returns, as well as higher abnormal trading volume. More levered and riskier holding companies seem to be more affected by the stress test information. We find no ...
Staff Reports , Paper 744

Working Paper
The Credit Card Act and Consumer Finance Company Lending

The Credit Card Accountability and Disclosure Act (CARD Act) of 2009 restricted several risk management practices of credit card issuers. Using a quasi-experimental design with credit bureau data on consumer lending, we find evidence consistent with the hypothesis that the act??s restrictions on risk management practices contributed to a large decline in bank card holding by higher risk, nonprime consumers but had little effect on prime consumers. Looking at consumer finance loans, historically a source of credit for higher risk consumers, we find greater reliance on such loans by nonprime ...
Finance and Economics Discussion Series , Paper 2017-072

Working Paper
Appraising Home Purchase Appraisals

Home appraisals are produced for millions of residential mortgage transactions each year, but appraised values are rarely below the purchase contract price. We argue that institutional features of home mortgage lending cause much of the information in appraisals to be lost: some 30 percent of recent appraisals are exactly at the home price (with less than 10 percent below it). We lay out a novel, basic theoretical framework to explain how lenders? and appraisers? incentives lead to information loss in appraisals (that is, appraisals set equal to the contract price). Such information loss is ...
Working Papers , Paper 17-23

Working Paper
Where the Wild Things Are: Measuring Systemic Risk through Investor Sentiment

In this paper, I develop a systemic risk measure derived from investor sentiment that has predictive power over future economic activity and market returns. Unlike existing measures, it is not focused on flagging investors? heightened awareness of risk at the end of a boom episode but rather on capturing shifts in their trading behavior at the beginning of the episode. The method allows investors and regulators to observe industries in which risks could be building and provides regulators some lead time in deploying their macroprudential tools.
Working Papers (Old Series) , Paper 1608

Report
Peas in a pod? Comparing the U.S. and Danish mortgage finance systems

Like the United States, Denmark relies heavily on capital markets for funding residential mortgages, and the Danish covered bond market bears a number of similarities to U.S. agency securitization. In this paper we describe the key features of the Danish mortgage finance system and compare and contrast it to the U.S. system. We also note characteristics of the Danish model that may be of interest as the United States considers further mortgage finance reform. In particular, the Danish system includes features that mitigate refinancing frictions during periods of falling home prices, and ...
Staff Reports , Paper 848

Working Paper
How Resilient Is Mortgage Credit Supply? Evidence from the COVID-19 Pandemic

We study the evolution of US mortgage credit supply during the COVID-19 pandemic. Although the mortgage market experienced a historic boom in 2020, we show there was also a large and sustained increase in intermediation markups that limited the pass-through of low rates to borrowers. Markups typically rise during periods of peak demand, but this historical relationship explains only part of the large increase during the pandemic. We present evidence that pandemic-related labor market frictions and operational bottlenecks contributed to unusually inelastic credit supply, and that ...
Working Papers , Paper 21-4

Journal Article
How Have Banks Been Managing the Composition of High-Quality Liquid Assets?

Banks? liquidity management practices are fundamental to understanding the implementation and transmission of monetary policy. Since the Global Financial Crisis of 2007-09, these practices have been shaped importantly by the liquidity coverage ratio requirement. Given the lack of public data on how banks have been meeting this requirement, we construct estimates of U.S. banks? high-quality liquid assets (HQLA) and examine how banks have managed these assets since the crisis. We find that banks have adopted a wide range of HQLA compositions and show that this empirical finding is consistent ...
Review , Volume 101 , Issue 3

Working Paper
The Credit Crunch and Fall in Employment during the Great Recession

We study the existence and economic significance of bank lending channels that affect employment in U.S. manufacturing industries. In particular, we address the question of how a dramatic worsening of firm and consumer access to bank credit, such as the one observed over the Great Recession, translates into job losses in these industries. To identify these channels, we rely on differences in the degree of external finance dependence and of asset tangibility across manufacturing industries and in the sensitivity of these industries' output to changes in the supply of consumer credit. We show ...
Finance and Economics Discussion Series , Paper 2014-06

Working Paper
The International Bank Lending Channel of Monetary Policy Rates and QE: Credit Supply, Reach-for-Yield, and Real Effects

We identify the international credit channel of monetary policy by analyzing the universe of corporate loans in Mexico, matched with firm and bank balance-sheet data, and by exploiting foreign monetary policy shocks, given the large presence of European and U.S. banks in Mexico. We find that a softening of foreign monetary policy increases the supply of credit of foreign banks to Mexican firms. Each regional policy shock affects supply via their respective banks (for example, U.K. monetary policy affects credit supply in Mexico via U.K. banks), in turn implying strong real effects, with ...
International Finance Discussion Papers , Paper 1137

Working Paper
Bank Interventions and Options-based Systemic Risk: Evidence from the Global and Euro-area Crisis

Using a novel dataset on central bank interventions to financial institutions, we examine the impact of capital injection announcements on systemic risk for the banking sector in the U.S. and the euro area between 2008 and 2013. We propose a new measure of options-based systemic risk called downside correlation risk premium (DCRP), which quantifies the compensation investors demand for being exposed to the risk of large correlated drops in bank stock prices. DCRP is calculated using options that provide a hedge against large drops in the price of a bank index and its individual components. We ...
International Finance Discussion Papers , Paper 1117

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