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Journal Article
Review of New York Fed studies on the effects of post-crisis banking reforms
In 2017, the Federal Reserve Bank of New York initiated a project to examine the effects of post-crisis reforms on bank performance and vulnerability. The project, which was completed in June 2018, consisted of twelve studies evaluating a wide set of regulatory changes. The primary focus was how these regulatory changes affected the risk taking, funding costs, and profitability of banks, as well as their impact on liquidity. In this article, the authors survey the twelve papers that make up the project and place the principal findings in the context of the current academic and policymaking ...
Working Paper
Post-crisis Signals in Securitization: Evidence from Auto ABS
We find significant evidence of asymmetric information and signaling in post-crisis offerings in the auto asset-backed securities (ABS) market. Using granular regulatory reporting data, we are able to directly measure private information and quantify its effect on signaling and pricing. We show that lenders "self-finance'' unobservably higher-quality loans by holding these loans for longer periods to signal private information. This signal is priced in initial offerings of auto ABS and accurately predicts ex-post loan performance. We also demonstrate that our results are robust to exogenous ...
Briefing
Essentiality of Money: A Historical Perspective
In this article, I explore the historical development of the concept of essentiality of money, as well as monetary theory more broadly. I begin by introducing the concept of money and its role in facilitating economic activity. I delve into the evolution of monetary theory, starting with the classical theory and the marginal revolution and moving to the division between microeconomics and macroeconomics. Then I discuss the microfoundation revolution in macroeconomics and the debate over the essentiality of money. Finally, I examine the New Keynesian School (which uses reduced-form tools to ...
Working Paper
Supervisory Stress Testing For CCPs : A Macro-Prudential, Two-Tier Approach
Stress testing has become an increasingly important mechanism to support a variety of financial stability objectives. Stress tests can be used to test the individual resilience of a single entity or to assess the system-wide vulnerabilities of a network. This article examines the role of supervisory stress testing of central counterparties (CCPs), which has emerged in recent years. A key message is that crucial differences in CCPs? role, risk profile and financial structure, when compared to banks, are likely to require significant adaptation in the design of supervisory stress tests (SSTs). ...
Journal Article
Policy Update: Will Chevron Keep its Stripes?
Following the will of Congress is often a complicated endeavor for regulators, especially when lawmakers leave aspects of a regulatory law unclear. That uncertainty often leads to litigation. But how should courts determine if an administrative agency has gone outside the bounds of the law when designing regulations? This is an important question for regulators, like the Fed, that have been charged with implementing laws passed by Congress.In the 1984 landmark case Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. the Supreme Court established a process to determine ...
Working Paper
Bank Capital Regulations Around the World : What Explains the Differences?
Despite the extensive attention that the Basel capital adequacy standards have received internationally, significant variation exists in the implementation of these standards across countries. Furthermore, a significant number of countries increase or decrease the stringency of capital regulations over time. The paper investigates the empirical determinants of the variation in the data based on the theories of bank capital regulation. The results show that countries with high average returns to investment and a high ratio of government ownership of banks choose less stringent capital ...
Working Paper
Out of Sight No More? The Effect of Fee Disclosures on 401(k) Investment Allocations
We examine the effects of a 2012 regulatory reform that mandated fee and performance disclosures for the investment options in 401(k) plans. We show that participants became significantly more attentive to expense ratios and short-term performance after the reform. The disclosure effects are stronger among plans with large average contributions per participant and weaker for plans with many investment options. Additionally, these results are not driven by secular changes in investor behavior or sponsor-initiated changes to the investment menus. Our findings suggest that providing salient fee ...
Working Paper
The Differential Impact of Bank Size on Systemic Risk
We examine whether financial stress at larger banks has a different impact on the real economy than financial stress at smaller banks. Our empirical results show that stress experienced by banks in the top 1 percent of the size distribution leads to a statistically significant and negative impact on the real economy. This impact increases with the size of the bank. The negative impact on quarterly real GDP growth caused by stress at banks in the top 0.15 percent of the size distribution is more than twice as large as the impact caused by stress at banks in the top 0.75 percent, and more than ...