Search Results
Speech
Panel Remarks: Supervisory and Regulatory Action to Support the Economy and Protect Consumers
Panel Remarks at The Fed and Main Street during the Coronavirus Pandemic, WebEx event, April 23, 2020.
Journal Article
Transmission of Sovereign Risk to Bank Lending
Banks hold a significant exposure to their own sovereigns. An increase in sovereign risk may hurt banks' balance sheets, causing a decrease in lending and a decline in economic activity. We quantify the transmission of sovereign risk to bank lending and provide new evidence about the effect of sovereign risk on economic outcomes. We consider the 1999 Marmara earthquake in Turkey as an exogenous shock leading to an increase in Turkey's default risk. Our empirical estimates show that, for banks holding a higher amount of government securities, the exogenous change in sovereign default risk ...
Working Paper
Sovereign Risk and Bank Lending: Theory and Evidence from a Natural Disaster
We quantify the sovereign-bank doom loop by using the 1999 Marmara earthquake as an exogenousshock leading to an increase in Turkey’s default risk. Our theoretical model illustrates that for banks withhigher exposure to government securities, a higher sovereign default risk implies lower net worth andtightening financial constraint. Our empirical estimates confirm the model’s predictions, showing that theexogenous change in sovereign default risk tightens banks’ financial constraints significantly for banks thathold a higher amount of government securities. The resulting tighter bank ...
Have Fed Asset Purchases Reshaped Bank Balance Sheets? Part 1
In response to the COVID-19 crisis, the Fed bought trillions of dollars in bonds. Did this cause U.S. commercial banks to “de-risk” their assets?
Have Fed Asset Purchases Reshaped Bank Balance Sheets? Part 2
The de-risking of commercial banks’ balance sheets since 2008 likely reflects regulatory changes and economic conditions rather than the Fed’s bond buying.
Working Paper
How Have Banks Been Managing the Composition of High-Quality Liquid Assets?
We study banks' post-crisis liquidity management. We construct time series of U.S. banks' holdings of high-quality liquid assets (HQLA) and examine how these assets have been managed in recent years to comply with the Liquidity Coverage Ratio (LCR) requirement. We find that, in becoming LCR compliant, banks initially ramped up their stock of reserve balances. However, once the requirement was met, some banks subsequently shifted the compositions of their liquid portfolios significantly. This raises the question: What drives the compositions of banks? HQLA? We show that a risk-return framework ...
Discussion Paper
Reading the Panic: How Investors Perceived Bank Risk During the 2023 Bank Run
The bank run that started in March 2023 in the U.S. occurred at an unusually rapid pace, suggesting that depositors were surprised by these events. Given that public data revealed bank vulnerabilities as early as 2022:Q1, were other market participants also surprised? In this post, based on a recent paper, we develop a new, high-frequency measure of bank balance sheet risk to examine how stock market investors’ risk sensitivity evolved around the run. We find that stock market investors only became attentive to bank risk after the run and only to the risk of a limited number (less than ...
Discussion Paper
Calming the Panic: Investor Risk Perceptions and the Fed’s Emergency Lending during the 2023 Bank Run
In a companion post, we showed that during the bank run of spring 2023 investors were seemingly not concerned about bank risk broadly but rather became sensitized to the risk of only about a third of all publicly traded banks. In this post, we investigate how the Federal Reserve’s liquidity support affected investor risk perceptions during the run. We find that the announcement of the Fed’s novel Bank Term Funding Program (BTFP), and subsequent borrowings from the program, substantially reduced investor risk perceptions. However, borrowings from the Fed’s traditional discount window ...