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Report
Banking globalization, transmission, and monetary policy autonomy
Goldberg, Linda S. (2013-09-01)
International financial linkages, particularly through global bank flows, generate important questions about the consequences for economic and financial stability, including the ability of countries to conduct autonomous monetary policy. I address the monetary autonomy issue in the context of the international policy trilemma: Countries seek three typically desirable but jointly unattainable objectives?stable exchange rates, free international capital mobility, and monetary policy autonomy oriented toward, and effective at, achieving domestic goals. I argue that global banking entails some ...
Staff Reports , Paper 640

Report
Asset Pricing with Cohort-Based Trading in MBS Markets
Song, Zhaogang; Fusari, Nicola; Liu, Haoyang; Li, Wei (2020-07-01)
Agency MBSs with diverse characteristics are traded in parallel through individualized specified pool (SP) contracts and standardized to-be-announced (TBA) contracts. This parallel trading environment generates distinctive effects on MBS pricing and trading: (1) Although cheapest-to-deliver (CTD) issues are present in TBA trading and absent from SP trading by design, MBS heterogeneity associated with CTD discounts affects SP returns positively, with the effect stronger for lower-value SPs; (2) High selling pressure amplifies the effects of MBS heterogeneity on SP returns; (3) Greater MBS ...
Staff Reports , Paper 931

Discussion Paper
How Has Treasury Market Liquidity Evolved in 2023?
Fleming, Michael J. (2023-10-17)
In a 2022 post, we showed how liquidity conditions in the U.S. Treasury securities market had worsened as supply disruptions, high inflation, and geopolitical conflict increased uncertainty about the expected path of interest rates. In this post, we revisit some commonly used metrics to assess how market liquidity has evolved since. We find that liquidity worsened abruptly In March 2023 after the failures of Silicon Valley Bank and Signature Bank, but then quickly improved to levels close to those of the preceding year. As in 2022, liquidity in 2023 continues to closely track the level that ...
Liberty Street Economics , Paper 20231017

Speech
Liquidity Shocks: Lessons Learned from the Global Financial Crisis and the Pandemic
Logan, Lorie (2021-08-11)
Remarks at the 2021 Financial Crisis Forum, Panel on Lessons for Emergency Lending (delivered via videoconference).
Speech

Working Paper
Liquidity Risk and U.S. Bank Lending at Home and Abroad
Correa, Ricardo; Goldberg, Linda S.; Rice, Tara N. (2014-05-29)
While the balance sheet structure of U.S. banks influences how they respond to liquidity risks, the mechanisms for the effects on and consequences for lending vary widely across banks. We demonstrate fundamental differences across banks without foreign affiliates versus those with foreign affiliates. Among the nonglobal banks (those without a foreign affiliate), cross-sectional differences in response to liquidity risk depend on the banks' shares of core deposit funding. By contrast, differences across global banks (those with foreign affiliates) are associated with ex ante liquidity ...
International Finance Discussion Papers , Paper 1105

Working Paper
What Drives Bank Funding Spreads?
King, Thomas B.; Lewis, Kurt F. (2014-11-13)
We use matched, bank-level panel data on Libor submissions and credit default swaps to decompose bank-funding spreads at several maturities into components reflecting counterparty credit risk and funding-market liquidity. To account for the possibility that banks may strategically misreport their funding rates in the Libor survey, we nest our decomposition within a model of the costs and benefits of lying. We find that Libor spreads typically consist mostly of a liquidity premium and that this premium declined at short maturities following Federal Reserve interventions in bank funding ...
Working Paper Series , Paper WP-2014-23

Discussion Paper
How Liquid Has the Treasury Market Been in 2022?
Fleming, Michael J.; Nelson, Claire (2022-11-15)
Policymakers and market participants are closely watching liquidity conditions in the U.S. Treasury securities market. Such conditions matter because liquidity is crucial to the many important uses of Treasury securities in financial markets. But just how liquid has the market been and how unusual is the liquidity given the higher-than-usual volatility? In this post, we assess the recent evolution of Treasury market liquidity and its relationship with price volatility and find that while the market has been less liquid in 2022, it has not been unusually illiquid after accounting for the high ...
Liberty Street Economics , Paper 20221115a

Discussion Paper
Factors that Affect Bank Stability
Yorulmazer, Tanju; Eisenbach, Thomas M. (2014-02-26)
In a previous Liberty Street Economics post, we introduced a framework for thinking about the risks banks face. In particular, we distinguished between asset return risk and funding risk that can interact and cause a bank to fail. In our framework, a bank can fail for two reasons: 1-Low asset returns: Fundamental insolvency due to erosion of equity by low asset returns that don’t cover a bank’s debt burden. 2-Loss of funding: Costly liquidation of assets that erode equity.
Liberty Street Economics , Paper 20140226

Working Paper
Defragmenting Markets: Evidence from Agency MBS
Liu, Haoyang; Song, Zhaogang; Vickery, James (2021-06-24)
Agency mortgage-backed securities (MBS) issued by Fannie Mae and Freddie Mac have historically traded in separate forward markets. We study the consequences of this fragmentation, showing that market liquidity endogenously concentrated in Fannie Mae MBS, leading to higher issuance and trading volume, lower transaction costs, higher security prices, and a higher rate of return on securitization for Fannie Mae. We then analyze a change in market design – the Single Security Initiative – which consolidated Fannie Mae and Freddie Mac MBS trading into a single market in June 2019. We find that ...
Working Papers , Paper 21-25

Report
Did liquidity providers become liquidity seekers?
Shachar, Or; Choi, Jaewon (2013-10-01)
The misalignment between corporate bond and credit default swap (CDS) spreads (i.e., CDS-fbond basis) during the 2007-09 financial crisis is often attributed to corporate bond dealers shedding off their inventory, right when liquidity was scarce. This paper documents evidence against this widespread perception. In the months following Lehman?s collapse, dealers, including proprietary trading desks in investment banks, provided liquidity in response to the large selling by clients. Corporate bond inventory of dealers rose sharply as a result. Although providing liquidity, limits to arbitrage, ...
Staff Reports , Paper 650

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