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Working Paper
Market conditions and hedge fund survival
As the hedge fund industry has grown, there has been increased concern that, during sharp market moves, hedge fund failures could exacerbate the deterioration in financial conditions and deepen a crisis. However, there has not been much formal analysis regarding the impact of financial market conditions on hedge fund survival. To help fill this gap, this paper examines the relationship between financial market conditions and the likelihood of hedge fund failure after controlling for performance and other characteristics. The analysis is conducted using data on individual funds and industry ...
Journal Article
Furnishing an “Elastic Currency”: The Founding of the Fed and the Liquidity of the U.S. Banking System
This article examines how the U.S. banking system responded to the founding of the Federal Reserve System (Fed) in 1914. The Fed was established to bring an end to the frequent crises that plagued the U.S. banking system, which reform proponents attributed to the nation?s ?inelastic? currency stock and dependence on interbank relationships to allocate liquidity and operate the payments system. Reform advocates noted that banking panics tended to occur at times of the year when the demands for currency and bank loans were normally at seasonal peaks and money markets were at their tightest. ...
Journal Article
Profits and balance sheet developments at U.S. commercial banks in 2003
Amid a strengthening economic expansion, U.S. commercial banks remained highly profitable in 2003. Return on assets reached a record level for the second year in a row, and return on equity was near the top of its recent range. Banks' profits were bolstered by decreased loan-loss provisions as a rising economy and considerable debt refinancing at very low interest rates led to lower delinquency rates on business and household loans. Fees associated with record mortgage refinancing activity and robust corporate bond issuance boosted non-interest income. Increases in non-interest expense were ...
Discussion Paper
The Re-emergence of the Federal Reserve Funds Market in the 1950s
In this note, we highlight the re-emergence of the federal funds market in the 1950s.
Working Paper
The lender of last resort: lessons from the Fed’s first 100 years
We review the responses of the Federal Reserve to financial crises over the past 100 years. The authors of the Federal Reserve Act in 1913 created an institution that they hoped would prevent banking panics from occurring. When this original framework did not prevent the banking panics of the 1930s, Congress amended the Act and gave the Federal Reserve considerably greater powers to respond to financial crises. Over the subsequent decades, the Federal Reserve responded more aggressively when it perceived that there were threats to financial stability and ultimately to economic activity. We ...
Working Paper
Considerations regarding the use of the discount window to support economic activity through a funding for lending program
This paper considers the use of the Federal Reserve's ability to provide loans to depository institutions under its discount window lending authority in support of achieving its monetary policy objectives through a funding for lending program. Broadly, a funding for lending program could be structured as one in which the Federal Reserve makes ample low-cost funding available to banks or a program in which the Federal Reserve only provides low-cost funding conditional on the banks meeting certain lending targets. We provide a general description of how a funding for lending program could be ...
Working Paper
A New Daily Federal Funds Rate Series and History of the Federal Funds Market, 1928-1954
This article describes the origins and development of the federal funds market from its inception in the 1920s to the early 1950s. We present a newly digitized daily data series on the federal funds rate that covers the period from April 1928 through June 1954. We compare the behavior of the funds rate with other money market interest rates and the Federal Reserve discount rate. Our federal funds rate series will enhance the ability of researchers to study an eventful period in U.S. financial history and to better understand how monetary policy was transmitted to banking and financial ...
Working Paper
Are branch banks better survivors? Evidence from the Depression era
It is widely argued in the literature on the Great Depression that the prevalence of unit banks aggravated the problem of financial instability that afflicted the country. This paper tests the theory that more widespread branch banking would have reduced financial turbulence in the United States by examining the survival of individual branch and unit banks. Results indicate that instead of being more likely to survive, branch banks were more likely to fail. Further investigation suggests that this higher failure rate occurred because branch banks systematically held riskier portfolios than ...
Working Paper
Lessons from the historical use of reserve requirements in the United States to promote bank liquidity
Efforts in the United States to promote bank liquidity through reserve requirements, a minimum ratio of liquid assets relative to liabilities, extend at least as far back as the aftermath of the Panic of 1837. These requirements were quite important during the National Banking Era. Nevertheless, suspensions of deposit convertibility and liquidity shortfalls continued to occur during banking panics. Eventually, efforts to ensure that banks remained liquid resulted in a shift away from reserve requirements in favor of a central bank able to add liquidity to the financial system. This paper ...
Working Paper
Navigating constraints: the evolution of Federal Reserve monetary policy, 1935-59
The 1950s are often cited as a decade in which the Federal Reserve operated a particularly successful monetary policy. The present paper examines the evolution of Federal Reserve monetary policy from the mid-1930s through the 1950s in an effort to understand better the apparent success of policy in the 1950s. Whereas others have debated whether the Fed had a sophisticated understanding of how to implement policy, our focus is on how the constraints on the Fed changed over time. Roosevelt Administration gold policies and New Deal legislation limited the Fed?s ability to conduct an independent ...