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Keywords:banks 

Discussion Paper
Low Interest Rates and Bank Profits

The Fed’s December 2015 decision to raise interest rates after an unprecedented seven-year stasis offers a chance to assess the link between interest rates and bank profitability. A key determinant of a bank’s profitability is its net interest margin (NIM)—the gap between an institution’s interest income and interest expense, typically normalized by the average size of its interest-earning assets. The aggregate NIM for the largest U.S. banks reached historic lows in the fourth quarter of 2015, coinciding with the “low for long” interest rate environment in place since the ...
Liberty Street Economics , Paper 20170621

Working Paper
Lending Relationships and Optimal Monetary Policy

We construct and calibrate a monetary model of corporate finance with endogenous formation of lending relationships. The equilibrium features money demands by firms that depend on their access to credit and a pecking order of financing means. We describe the mechanism through which monetary policy affects the creation of relationships and firms' incentives to use internal or external finance. We study optimal monetary policy following an unanticipated destruction of relationships under different commitment assumptions. The Ramsey solution uses forward guidance to expedite creation of new ...
Working Paper , Paper 20-13

Speech
A Return to Operating with Abundant Reserves

Remarks before the Money Marketeers of New York University (delivered via videoconference).
Speech

Discussion Paper
Banking Deserts, Branch Closings, and Soft Information

U.S. banks have shuttered nearly 5,000 branches since the financial crisis, raising concerns that more low-income and minority neighborhoods may be devolving into ?banking deserts? with inadequate, or no, mainstream financial services. We investigate this issue and also ask whether such neighborhoods are particularly exposed to branch closings?a development that, according to recent research, could reduce credit access, even with other branches present, by destroying ?soft? information about borrowers that influences lenders? credit decisions. Our findings are mixed, suggesting that further ...
Liberty Street Economics , Paper 20160307

Discussion Paper
Tracking the U.S. Banking Industry

The New York Fed has recently published the first edition of a new quarterly report tracking the aggregate financial condition of consolidated U.S. banking organizations. In this post, we describe the methodology used to construct the statistics in the report as well as present and briefly discuss some of the findings.
Liberty Street Economics , Paper 20121010

Discussion Paper
Leverage Ratio Arbitrage All Over Again

Leverage limits as a form of capital regulation have a well-known, potential bug: If banks can’t lever returns as desired, they can boost returns on equity by shifting toward riskier, higher yielding assets. That reach for yield is the leverage rule “arbitrage.” But would banks do that? In a previous post, we discussed evidence from our working paper that banks did do just that in response to the new leverage rule that took effect in 2018. This post discusses new findings in our revised paper on when and how banks arbitraged.
Liberty Street Economics , Paper 20200630

Discussion Paper
Are Banks Being Roiled by Oil?

Profits and employment in the oil and natural gas extraction industry have fallen significantly since 2014, reflecting a sustained decline in energy prices. In this post, we look at how these tremors are affecting banks that operate in energy industry?intensive regions of the United States. We find that banks in the ?oil patch? have experienced a significant rise in delinquencies on commercial and industrial loans. So far though, there appears to be limited evidence of spillovers to other types of loans and no evidence of widespread bank losses or failures in these regions.
Liberty Street Economics , Paper 20161024

Journal Article
Banking on the Boom, Tripped by the Bust: Banks and the World War I Agricultural Price Shock

How do banks respond to asset booms? This paper examines i) how U.S. banks responded to the World War I farmland boom; ii) the impact of regulation; and iii) how bank closures exacerbated the post-war bust. The boom encouraged new bank formation and balance sheet expansion (especially by new banks). Deposit insurance amplified the impact of rising crop prices on bank portfolios, while higher minimum capital requirements dampened the effects. Banks that responded most aggressively to the asset boom had a higher probability of closing in the bust, and counties with more bank closures ...
Working Papers , Volume 52 , Issue 7

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).
Speech

Report
Federal Reserve tools for managing rates and reserves

The Federal Reserve announced in January 2019 that it would maintain an ample supply of reserves amid its balance sheet reduction. We model the impact of reserves on banks’ liquidity and balance sheet costs. In competitive general equilibrium, the optimal supply of reserves equates bank deposit rates to the interest rate paid on excess reserves (IOER), consistent with ample reserves. Raising the Fed’s overnight reverse repo rate up to IOER would increase liquidity, expediently reduce the overabundance of reserves, and stabilize the volatility of overnight market rates. Empirical analysis ...
Staff Reports , Paper 642

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