Search Results
Discussion Paper
Liquidity Effects of Post-Crisis Regulatory Reform
The post-crisis regulatory reform efforts to improve capital and liquidity positions of regulated institutions provide incentives for banks to change not only the structure of their own balance sheets but also how they interact with their customers and other market participants more generally. A 2015 PwC study on global financial market liquidity, for example, noted that “[a]s banks respond to the new regulatory environment, they have sought to make more efficient use of capital and liquidity resources, by reducing the markets they serve and streamlining their operations.” In this blog ...
Journal Article
Trends in credit basis spreads
Market participants and policymakers were surprised by the large, prolonged dislocations in credit market basis trades during the second half of 2015 and the first quarter of 2016. In this article, we examine three explanations proposed by market participants: increased idiosyncratic risks, strategic positioning by asset managers, and regulatory changes. We find some evidence of increased idiosyncratic risk during the relevant period, but limited evidence of asset managers changing their positioning in derivative products. Although we cannot quantify the contribution of these two channels to ...
Journal Article
Negative swap spreads
Market participants have been surprised by the decline of U.S. interest rate swap rates relative to Treasury yields of equal maturity over the past two years, with interest rate swap spreads becoming negative for many maturities. This movement of swap spreads into negative territory has been attributed anecdotally to idiosyncratic factors such as changes in foreign reserve balances and liability duration management by corporations. However, we argue in this article that regulatory changes affected the willingness of supervised institutions to absorb shocks. In particular, we find that ...
Working Paper
Reversals in Global Market Integration and Funding Liquidity
This paper looks at the reversals in global financial integration through the funding liquidity lens. First, we construct a segmentation indicator based on differences in funding liquidity across countries as measured by the performance of betting-against-beta strategies. Second, we find that funding liquidity shocks help explain recent reversals in integration in the absence of explicit foreign investment barriers. These findings are consistent with tighter limits to arbitrage and increased home bias during funding distress periods. Our empirical analysis is guided by a margin-CAPM model ...
Speech
Market and funding liquidity: an overview, remarks at the Federal Reserve Bank of Atlanta 2016 Financial Markets Conference, Fernandina Beach, Florida, May 2016
Remarks at the Federal Reserve Bank of Atlanta 2016 Financial Markets Conference, Fernandina Beach, Florida.