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Speech
The Federal Reserve’s Market Functioning Purchases: From Supporting to Sustaining
Logan, Lorie (2020-07-15)
Remarks at SIFMA Webinar.
Speech

Working Paper
International financial integration, crises, and monetary policy: evidence from the euro area interbank crises
Peydro, Jose Luis; Fecht, Falko; Bräuning, Falk; Abbassi, Puriya (2017-07-01)
We analyze how financial crises affect international financial integration, exploiting euro area proprietary interbank data, crisis and monetary policy shocks, and variation in loan terms to the same borrower on the same day by domestic versus foreign lenders. Crisis shocks reduce the supply of crossborder liquidity, with stronger volume effects than pricing effects, thereby impairing international financial integration. On the extensive margin, there is flight to home ? but this is independent of quality. On the intensive margin, however, GIPS-headquartered debtor banks suffer in the Lehman ...
Working Papers , Paper 17-6

Discussion Paper
Pricing Liquidity without Preemptive Runs
Cipriani, Marco; Martin, Antoine; McCabe, Patrick E. (2022-01-31)
Prime money market funds (MMFs) are vulnerable to runs. This was dramatically illustrated in September 2008 and March 2020, when massive outflows from prime MMFs worsened stress in the short-term funding markets and eased only after taxpayer-supported interventions by the Treasury and the Federal Reserve. In this post, we describe how mechanisms like swing pricing that charge a price for liquidity can reduce the vulnerability of prime MMFs without triggering preemptive runs.
Liberty Street Economics , Paper 20220131

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
Credit and Liquidity Policies during Large Crises
Ebsim, Mahdi; Faria-e-Castro, Miguel; Kozlowski, Julian (2023-11-20)
We compare firms’ financials during the Great Financial Crisis (GFC) and COVID-19. While the two crises featured similar increases in credit spreads, debt and liquid assets decreased during the GFC but increased during COVID-19. In the cross-section, leverage was the primary determinant of credit spreads and investment during the GFC, but liquidity was more important during COVID-19. We augment a quantitative model of firm capital structure with a motive to hold liquid assets. The GFC resembled a combination of real and financial shocks, while COVID-19 also featured liquidity shocks. We ...
Working Papers , Paper 2020-035

Working Paper
Cash-in-the-Market Pricing in a Model with Money and Over-the-Counter Financial Markets
Nosal, Ed; Mattesini, Fabrizio (2011-11-13)
Entrepreneurs need cash to finance their real investments. Since cash is costly to hold, entrepreneurs will underinvest. If entrepreneurs can access financial markets prior to learning about an investment opportunity, they can sell some of their less liquid assets for cash and, as a result, invest at a higher level. When financial markets are over-the-counter, the price that the entrepreneur receives for the assets that he sells depends on the amount of liquidity (cash) that is in the OTC market: Greater levels of liquidity lead to higher asset prices. Since asset prices are linked to ...
Working Paper Series , Paper WP-2013-24

Speech
Treasury Market Liquidity and Early Lessons from the Pandemic Shock
Logan, Lorie (2020-10-23)
Remarks at Brookings-Chicago Booth Task Force on Financial Stability (TFFS) meeting, panel on market liquidity (delivered via videoconference).
Speech

Working Paper
The Financial Origins of Non-Fundamental Risk
Acharya, Sushant; Dogra, Keshav; Singh, Sanjay R. (2023-05-01)
We formalize the idea that the financial sector can be a source of non-fundamental risk. Households' desire to hedge against price volatility can generate price volatility in equilibrium, even absent fundamental risk. Fearing that asset prices may fall, risk-averse households demand safe assets from leveraged intermediaries, whose issuance of safe assets exposes the economy to self-fulfilling fire sales. Policy can eliminate nonfundamental risk by (i) increasing the supply of publicly backed safe assets, through issuing government debt or bailing out intermediaries, or (ii) reducing the ...
Working Paper Series , Paper 2023-20

Discussion Paper
With Abundant Reserves, Do Banks Adjust Reserve Balances to Accommodate Payment Flows?
Kraft, Kailey; Huang, Catherine; Copeland, Adam (2022-10-12)
As a result of the global financial crisis (GFC), the Federal Reserve switched from a regime of scarce reserves to one of abundant reserves. In this post, we explore how banks’ day-to-day management of reserve balances with respect to payment flows changed with this regime switch. We find that bank behavior did not change on average; under both regimes, banks increased their opening balances when they expected higher outgoing payments and, similarly, decreased these balances with expected higher incoming payments. There are substantial differences across banks, however. At the introduction ...
Liberty Street Economics , Paper 20221012

Report
Financial Stability Considerations for Monetary Policy: Empirical Evidence and Challenges
Boyarchenko, Nina; Favara, Giovanni; Schularick, Moritz (2022-02-01)
This paper reviews literature on the empirical relationship between vulnerabilities in the financial system and the macroeconomy, and how monetary policy affects that connection. Financial vulnerabilities build up over time, with both risk appetite and risk taking rising during economic expansions. To some extent, financial crises are predictable and have severe real economic consequences when they occur. Empirically it is difficult to link monetary policy to financial vulnerabilities, in part because financial cycles have long durations, making it difficult to separate effects of changes in ...
Staff Reports , Paper 1003

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