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Speech
Challenges in resolving systemically important financial institutions.
Rosengren, Eric S. (2009)
Presentation by Eric S. Rosengren, President and Chief Executive Officer, Federal Reserve Bank of Boston, for The Institute of Regulation and Risk North Asia, Hong Kong, May 5, 2009
Speech , Paper 26

Working Paper
Caught between Scylla and Charybdis? Regulating bank leverage when there is rent seeking and risk shifting
Mehran, Hamid; Acharya, Viral V.; Thakor, Anjan V. (2010)
Banks face two moral hazard problems: asset substitution by shareholders (e.g., making risky, negative net present value loans) and managerial rent seeking (e.g., investing in inefficient ?pet? projects or simply being lazy and uninnovative). The privately-optimal level of bank leverage is neither too low nor too high: It balances effi ciently the market discipline imposed by owners of risky debt on managerial rent-seeking against the asset-substitution induced at high levels of leverage. However, when correlated bank failures can impose significant social costs, regulators may bail out bank ...
Working Papers (Old Series) , Paper 1024

Speech
Liquidity and systemic risk.
Rosengren, Eric S. (2008)
Presented by Eric S. Rosengren, President and Chief Executive Officer, Federal Reserve Bank of Boston, for the Federal Reserve Bank of Richmond's 2008 Credit Markets Symposium, The Changing Business of Banking, Charlotte, North Carolina, April 18, 2008
Speech , Paper 12

Journal Article
Securities loans collateralized by cash: reinvestment risk, run risk, and incentive issues
Keane, Frank M. (2013-05)
Securities loans collateralized by cash are by far the most popular form of securities-lending transaction. But when the cash collateral associated with these transactions is actively reinvested by a lender?s agent, potential risks emerge. This study argues that the standard compensation scheme for securities-lending agents, which typically provides for agents to share in gains but not losses, creates incentives for them to take excessive risk. It also highlights the need for greater scrutiny and understanding of cash reinvestment practices?especially in light of the AIG experience, which ...
Current Issues in Economics and Finance , Volume 19 , Issue May

Working Paper
SAFE: An early warning system for systemic banking risk
Oet, Mikhail V.; Wang, Jing; Eiben, Ryan; Gramlich, Dieter; Bianco, Timothy; Ong, Stephen J. (2011)
This paper builds on existing microprudential and macroprudential early warning systems (EWSs) to develop a new, hybrid class of models for systemic risk, incorporating the structural characteristics of the fi nancial system and a feedback amplification mechanism. The models explain fi nancial stress using both public and proprietary supervisory data from systemically important institutions, regressing institutional imbalances using an optimal lag method. The Systemic Assessment of Financial Environment (SAFE) EWS monitors microprudential information from the largest bank holding companies to ...
Working Papers (Old Series) , Paper 1129

Speech
Lessons of the crisis: the implications for regulatory reform
Dudley, William (2010)
Remarks at the Partnership for New York City Discussion, New York City.
Speech , Paper 10

Report
Discussion of “Systemic Risk and the Solvency-Liquidity Nexus of Banks”
Adrian, Tobias (2015-04-01)
Pierret (2015) presents empirical analysis of the solvency-liquidity nexus for the banking system, documenting that a shock to the level of banks? solvency risk is followed by lower short-term debt. Conversely, higher short-term debt Granger-causes higher solvency risk. These results point toward a tight interaction between solvency and liquidity risk over time. My comments are threefold. First, I suggest improving the identification of shocks in Pierret?s vector autoregressive setup. Second, I caution against using the quantitative results as the basis for setting policy. Third, I recommend ...
Staff Reports , Paper 722

Discussion Paper
The Growing Risk of Spillovers and Spillbacks in the Bank‑NBFI Nexus
Acharya, Viral V.; Cetorelli, Nicola; Tuckman, Bruce (2024-06-20)
Nonbank financial institutions (NBFIs) are growing, but banks support that growth via funding and liquidity insurance. The transformation of activities and risks from banks to a bank-NBFI nexus may have benefits in normal states of the world, as it may result in overall growth in (especially, credit) markets and widen access to a wide range of financial services, but the system may be disproportionately exposed to financial and economic instability when aggregate tail risk materializes. In this post, we consider the systemic implications of the observed build-up of bank-NBFI connections ...
Liberty Street Economics , Paper 20240620

Speech
Pursuing financial stability at the Federal Reserve : a speech at the Fourteenth Annual International Banking Conference, Federal Reserve Bank of Chicago, Chicago, Illinois, November 11, 2011
Yellen, Janet L. (2011)
a speech at the Fourteenth Annual International Banking Conference, Federal Reserve Bank of Chicago, Chicago, Illinois, Nov. 11, 2011
Speech , Paper 595

Working Paper
Central Clearing and Systemic Liquidity Risk
King, Thomas B.; Nesmith, Travis D.; Paulson, Anna L.; Prono, Todd (2022-05-06)
By stepping between bilateral counterparties, central counterparties (CCPs) transform credit exposure, thereby improving financial stability. But, large CCPs are concentrated and interconnected with major global banks. Moreover, although they mitigate credit risk, CCPs create liquidity risks, because they require participants to provide cash. Such requirements increase with market volatility; consequently, CCP liquidity needs are inherently procyclical. This procyclicality makes it more challenging to assess CCPs’ resilience in the rare event that one or more large financial institutions ...
Finance and Economics Discussion Series , Paper 2020-009r1

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