Search Results
Working Paper
Foreign Entry into Underwriting Services: Evidence from Japan’s “Big Bang” Deregulation
We examine the impact of foreign underwriting activity on bond markets using issue-level data in the Japanese "Samurai" and euro-yen bond markets. Firms choosing Japanese underwriters tend to be Japanese, riskier, and smaller. We find that Japanese underwriting fees, while higher overall on average, are actually lower after conditioning for issuer characteristics. Moreover, firms tend to sort properly in their choice of underwriter, in the sense that a switch in underwriter nationality would be predicted to result in an increase in underwriting fees. Finally, we conduct a matching exercise to ...
Discussion Paper
The Rise of Sponsored Service for Clearing Repo
Recently instituted rule amendments have initiated a large migration of dealer-to-client Treasury repurchase trades to central clearing. To date, the main avenue used to access central clearing is Sponsored Service, a clearing product that has, until now, received little attention. This post highlights the results from a recent Staff Report which presents a deep dive into Sponsored Service. Here, we summarize the description of the institutional details of this service and its costs and benefits. We then document some basic facts on how market participants use this service, based on ...
Working Paper
Underwater: Strategic Trading and Risk Management in Bank Securities Portfolios
We use bond-level data to study how US banks manage risk in their securities portfolios, focusing on the period of rapidly-rising interest rates in 2022-23, and examine the role of financial and regulatory frictions in shaping bank behavior. Interest rate risk in bank portfolios increased sharply as rates rose, with significant cross-bank heterogeneity depending on ex ante holdings of bonds with embedded options. In response, exposed banks shortened the duration of bond purchases but did not actively sell risky securities or expand “qualified” hedging activity; securities also played a ...
Speech
Rising to the Challenge: Central Banking, Financial Markets, and the Pandemic
Remarks at the 16th Meeting of the Financial Research Advisory Committee for the Treasury’s Office of Financial Research (delivered via videoconference).
Discussion Paper
A History of SOMA Income
Historically, the Federal Reserve has held mostly interest-bearing securities on the asset side of its balance sheet and, up until 2008, mostly currency on its liability side, on which it pays no interest. Such a balance sheet naturally generates income, which is almost entirely remitted to the U.S. Treasury once operating expenses and statutory dividends on capital are paid and sufficient earnings are retained to equate surplus capital to capital paid in. The financial crisis that began in late 2007 prompted a number of changes to the balance sheet. First, the asset side of the balance sheet ...
Speech
The Federal Reserve’s Market Functioning Purchases: From Supporting to Sustaining
Remarks at SIFMA Webinar.
Discussion Paper
Available for Sale? Understanding Bank Securities Portfolios
It’s natural to think of banks as intermediaries that take in deposits and use them to make loans to businesses and individuals. But in fact, loans make up only 45 percent of the assets of U.S. banking organizations. What’s the rest? A large chunk, representing 24 percent of total assets, is accounted for by securities, such as U.S. Treasury and foreign government bonds, mortgage-backed securities (MBS), municipal and corporate bonds, and equities. In this post, we take a tour of bank securities portfolios, making use of charts and statistics from the Federal Reserve Bank of New York’s ...
Journal Article
Measuring Market-Based Inflation Expectations
TIPS offer a hedge against inflation risks, so demand for these securities may be up because investors are worried about longer-run inflation.
Working Paper
Monetary Transmission through Bank Securities Portfolios
We study the transmission of monetary policy through bank securities portfolios using granular supervisory data on U.S. bank securities, hedging positions, and corporate credit. Banks that experienced larger losses on their securities during the 2022-2023 monetary tightening cycle extended less credit to firms. This spillover effect was stronger for available-for-sale securities, unhedged securities, and banks that must include unrealized gains and losses in their regulatory capital. A structural model, disciplined by our cross-sectional regression estimates, shows that interest rate ...
Discussion Paper
What Happens When Regulatory Capital Is Marked to Market?
Minimum equity capital requirements are a key part of bank regulation. But there is little agreement about the right way to measure regulatory capital. One of the key debates is the extent to which capital ratios should be based on current market values rather than historical ?accrual? values of assets and liabilities. In a new research paper, we investigate the effects of a recent regulatory change that ties regulatory capital directly to the market value of the securities portfolio for some banks.