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Discussion Paper
The Odd Behavior of Repo Haircuts during the Financial Crisis
Copeland, Adam; Martin, Antoine (2012-09-17)
Since the financial crisis began, there’s been substantial debate on the role of haircuts in U.S. repo markets. (The haircut is the value of the collateral in excess of the value of the cash exchanged in the repo; see our blog post for more on repo markets.) In an influential paper, Gorton and Metrick show that haircuts increased rapidly during the crisis, a phenomenon they characterize as a general “run on repo.” Consequently, some policymakers and academics have considered whether regulating haircuts might help stabilize the repo markets, for example, by setting a minimum level so ...
Liberty Street Economics , Paper 20120917

Working Paper
Relationship lending in the interbank market and the price of liquidity
Bräuning, Falk; Fecht, Falko (2016-07-14)
We empirically investigate the effect that relationship lending has on the availability and pricing of interbank liquidity. Our analysis is based on a daily panel of unsecured overnight loans between 1,079 distinct German bank pairs from March 2006 to November 2007, a period that includes the 2007 liquidity crisis that marked the beginning of the 2007/08 global financial crisis. We find that (i) relationship lenders are more likely to provide liquidity to their closest borrowers, (ii) particularly opaque borrowers obtain liquidity at lower rates when borrowing from their relationship lenders, ...
Working Papers , Paper 16-7

Journal Article
The U.S. Financial Landscape on the Eve of the Pandemic
Martin, Fernando M. (2020-08-10)
During the 2007-08 financial crisis, the Federal Reserve stepped in to prevent a possible panic. How did this affect the U.S. financial system in later years?
The Regional Economist , Volume 28 , Issue 3

Journal Article
Minority-Owned Banks and Their Primary Local Market Areas
Toussaint-Comeau, Maude; Newberger, Robin G. (2017)
In this article, we analyze the experience and performance of MDIs in their primary local service areas in recent periods, including before, during, and after the 2008 financial crisis. We provide a review of the sector, highlighting key policies and initiatives pertaining to and affecting these institutions, and provide a brief review of previous research. We document trends in the sector, including: 1) the characteristics of the locations where MDIs tend to do business; 2) the changing landscape of MDIs in terms of openings, closings, and mergers by ethnic ownership; and 3) the performance ...
Economic Perspectives , Issue 4 , Pages 1-31

Working Paper
Interconnectedness in the Interbank Market
Brunetti, Celso; Harris, Jeffrey H.; Mankad, Shawn; Michailidis, George (2015-09-30)
We study the behavior of the interbank market before, during and after the 2008 financial crisis. Leveraging recent advances in network analysis, we study two network structures, a correlation network based on publicly traded bank returns, and a physical network based on interbank lending transactions. While the two networks behave similarly pre-crisis, during the crisis the correlation network shows an increase in interconnectedness while the physical network highlights a marked decrease in interconnectedness. Moreover, these networks respond differently to monetary and macroeconomic shocks. ...
Finance and Economics Discussion Series , Paper 2015-90

Working Paper
Housing Wealth and Consumption: The Role of Heterogeneous Credit Constraints
Aruoba, S. Boragan; Elul, Ronel; Ozcan, Sebnem Kalemli (2022-09-28)
We quantify the role of heterogeneity in households’ financial constraints in explaining the large decline in consumption between 2006 and 2009. Using household-level data, we show that in addition to a direct effect of changes in house prices, there are sizable indirect effects from general equilibrium feedback and bank health. About 60% of the aggregate response of consumption to changes in house prices is explained by ex-ante and ex-post financial constraints, where only a specific set of households face binding ex-post financial constraints as a result of declining house prices. We find ...
Working Papers , Paper 22-34

Working Paper
Agency Conflicts in Residential Mortgage Securitization: What Does the Empirical Literature Tell Us?
Frame, W. Scott (2017-03-01)
The agency conflicts inherent in securitization are viewed by many as having been a key contributor to the recent financial crisis, despite the presence of various legal and economic constructs to mitigate them. A review of recent empirical research for the U.S. home mortgage market suggests that securitization itself may not have been a problem, but rather the origination and distribution of observably riskier loans. Low-documentation mortgages, for which asymmetric information problems are acute, performed especially poorly during the crisis. Securitized low-documentation mortgages ...
FRB Atlanta Working Paper , Paper 2017-1

Report
Credit supply disruptions: from credit crunches to financial crisis
Rosengren, Eric S.; Peek, Joe (2015-10-01)
Events that transpired during the recent financial crisis highlight the important role that financial intermediaries still play in the economy, especially during economic downturns. While the breadth and severity of the financial crisis took most observers by surprise, it has renewed academic interest in understanding the effects on the real economy of both financial shocks and the changing nature of financial intermediation. This interest in the real effects of financial shocks highlights a literature that began more than 20 years ago associated with the bank credit crunch of the early ...
Current Policy Perspectives , Paper 15-5

Discussion Paper
What Makes a Bank Stable? A Framework for Analysis
Yorulmazer, Tanju; Eisenbach, Thomas M. (2014-02-24)
One of the major roles of banks and other financial intermediaries is to channel funds from savings into valuable projects. In doing so, banks engage in “liquidity and maturity transformation,” since they finance long-term, illiquid projects while funding themselves with short-term, liquid liabilities. By performing this important role, banks expose themselves to the risk of runs: If depositors or other short-term creditors worry about their claims, they may withdraw funds en masse and cause the bank to fail. The recent financial crisis once again highlighted the fragility associated with ...
Liberty Street Economics , Paper 20140224

Working Paper
Financial stress regimes and the macroeconomy
Owyang, Michael T.; Galvão, Ana B. (2014-07-24)
Some financial stress events lead to macroeconomic downturns, while others appear to be isolated to financial markets. We identify financial stress regimes using a model that explicitly links financial variables to macroeconomic outcomes. The stress regimes are identified using an unbalanced panel of financial variables with an embedded method for variable selection. Our identified stress regimes are associated with corporate credit tightening and with NBER recessions. An exogenous deterioration in our financial condition index has strong negative effects in economic activity, and negative ...
Working Papers , Paper 2014-20

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