Search Results
Report
Liquidity Regulations, Bank Lending, and Fire-Sale Risk
We examine whether U.S. banks subject to the Liquidity Coverage Ratio (LCR) reduce lending (an unintended consequence) and/or become more resilient to liquidity shocks, as intended by regulators. We find that LCR banks tighten lending standards, and reduce liquidity creation that occurs mainly through lower lending relative to non-LCR banks. However, covered banks also contribute less to fire-sale externalities relative to exempt banks. For LCR banks, we estimate that the total after-tax benefits of reduced fire-sale risk (net of the costs associated with foregone lending) exceed $50 billion ...
Journal Article
Economic Effects of Tighter Lending by Banks
Banks tightened the criteria used to approve loans over the past year. Analysis shows that their tighter lending standards can be partially explained by economic conditions that reduce demand for loans and increase their potential risk, such as policy rate increases and a slowing economy. The unexplained part may reflect a restrained credit supply, specifically related to banks being less willing or able to take on risk. What are the potential economic consequences? Past credit supply shocks have had significant long-lasting effects on unemployment but less impact on inflation.
Journal Article
Regulations
The Federal Reserve, HUD and the Federal Trade Commission, among others, implement regulations that address many abusive lending practices.
Discussion Paper
Documenting Lender Specialization
Robust banks are a cornerstone of a healthy financial system. To ensure their stability, it is desirable for banks to hold a diverse portfolio of loans originating from various borrowers and sectors so that idiosyncratic shocks to any one borrower or fluctuations in a particular sector would be unlikely to cause the entire bank to go under. With this long-held wisdom in mind, how diversified are banks in reality?
Briefing
Redlining and U.S. Residential Mortgage Market Pricing
Does redlining have implications for mortgage pricing today? This article summarizes our research assessing long-lasting implications from the "residential security maps" developed by the Home Owners Loan Corp. in the 1930s that color/letter-coded U.S. neighborhoods. The study finds (1) that the average levels of mortgage rates and fees are modestly higher for all borrowers on the historically targeted (redlined, that is, C-coded or D-coded) side of a neighborhood color boundary; (2) that mortgage rates and fees are modestly higher for minorities on either side of the boundary; (3) that these ...
Discussion Paper
How Do Liquidity Conditions Affect U.S. Bank Lending?
The recent financial crisis underscored the importance of understanding how liquidity conditions for banks (or other financial institutions) influence the banks’ lending to domestic and foreign customers. Our recent research examines the domestic and international lending responses to liquidity risks across different types of large U.S. banks before, during, and after the global financial crisis. The analysis compares large global U.S. banks—that is, those that have offices in foreign countries and are able to move liquidity from affiliates across borders—with large domestic U.S. banks, ...
Briefing
The Borrower of Last Resort: What Explains the Rise of ON RRP Facility Usage?
This article explains why the Fed has been borrowing more than $1.4 trillion from its borrower-of-last-resort facility: the Overnight Reverse Repo. We compare the roles of five channels potentially driving Fed borrowing (such as saving glut, quantitative easing, regulation, etc.) and find that one channel — the Treasury General Account drawdown — is associated with most of the current usage. We also find this channel's impact could be partially moderated if the Fed tapers quantitative easing accordingly.
Report
Cross-border prudential policy spillovers: how much? How important? Evidence from the International Banking Research Network
The development of macroprudential policy tools has been one of the most significant changes in banking regulation in recent years. In this multi-study initiative of the International Banking Research Network, researchers from fifteen central banks and two international organizations use micro-banking data in conjunction with a novel data set of prudential instruments to study international spillovers of prudential policy changes and their effects on bank lending growth. The collective analysis has three main findings. First, the effects of prudential instruments sometimes spill over borders ...
Discussion Paper
Who’s Lending in the Federal Funds Market?
The fed funds market is important to the framework and implementation of U.S. monetary policy. The Federal Open Market Committee sets a target level or range for the fed funds rate and directs the Trading Desk of the New York Fed to create ?conditions in reserve markets? that will encourage fed funds to trade at the target level. In this post, we use various publicly available data sources to estimate the size and composition of fed funds lending activity. We find that the fed funds market has shrunk considerably since the financial crisis and that lending activity is now dominated by one ...
Speech
The Fed’s Emergency Facilities: Usage, Impact, and Early Lessons
Remarks at Hudson Valley Pattern for Progress (delivered via videoconference).