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Working Paper
Macroprudential Policy: Results from a Tabletop Exercise
Rosen, Richard J.; Musatov, Alex; Prescott, Edward Simpson; Duffy, Denise; Kovner, Anna; Tallarini, Thomas D.; Yang, Emily; Haubrich, Joseph G.; Zlate, Andrei; Vardoulakis, Alexandros (2019-05-21)
This paper presents a tabletop exercise designed to analyze macroprudential policy. Several senior Federal Reserve officials were presented with a hypothetical economy as of 2020:Q2 in which commercial real estate and nonfinancial debt valuations were very high. After analyzing the economy and discussing the use of monetary and macroprudential policy tools, participants were then presented with a hypothetical negative shock to commercial real estate valuations that occurred in the second half of 2020. Participants then discussed the use of the tools during an incipient downturn. Some of the ...
Working Papers , Paper 19-11

Discussion Paper
The CLASS Model: A Top-Down Assessment of the U.S. Banking System
Hirtle, Beverly; Kovner, Anna; Vickery, James; Bhanot, Meru (2014-06-04)
Central banks and bank supervisors have increasingly relied on capital stress testing as a supervisory and macroprudential tool. Stress tests have been used by central banks and supervisors to assess the resilience of individual banking companies to adverse macroeconomic and financial market conditions as a way of gauging additional capital needs at individual firms and as a means of assessing the overall capital strength of the banking system. In this post, we describe a framework for assessing the impact of various macroeconomic scenarios on the capital and performance of the U.S. banking ...
Liberty Street Economics , Paper 20140604

Working Paper
The private premium in public bonds
Wei, Chenyang; Kovner, Anna (2012)
This paper is the first to document the presence of a private premium in public bonds. We find that spreads are 31 basis points higher for public bonds of private companies than for bonds of public companies, even after controlling for observable differences, including rating, financial performance, industry, bond characteristics and issuance timing. The estimated private premium increases to 40 to 50 basis points when a propensity matching methodology is used or when we control for fixed issuer effects. Despite the premium pricing, bonds of private companies are no more likely to default or ...
Working Papers , Paper 12-7

Discussion Paper
Low Interest Rates and Bank Profits
Kovner, Anna; Di Lucido, Katherine; Zeller, Samantha (2017-06-21)
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

Journal Article
Do big banks have lower operating costs?
Zhou, Lily; Kovner, Anna; Vickery, James (2014-12)
This study examines the relationship between bank holding company (BHC) size and components of noninterest expense (NIE) in order to shed light on the sources of scale economies in banking. Drawing on detailed expense information provided by U.S. banking firms in the memoranda of their regulatory filings, the authors find a robust negative relationship between size and normalized measures of NIE. The relationship is strongest for employee compensation expenses and components of ?other? noninterest expense such as information technology and corporate overhead expenses. In addition, the authors ...
Economic Policy Review , Issue Dec , Pages 1-27

Discussion Paper
Comparing Bank and Supervisory Stress Testing Projections
Kovner, Anna; Hirtle, Beverly (2014-01-08)
Stress tests are important tools for assessing whether financial institutions have enough capital to operate in bad economic conditions. In addition to being useful for understanding capital weaknesses at individual firms, coordinated stress tests can also provide insight into the vulnerabilities facing the banking industry as a whole. In this post, we look at 2013 stress test projections made by eighteen large U.S. bank holding companies under the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and compare them with supervisory projections made by the Federal ...
Liberty Street Economics , Paper 20140108

Report
Supervising large, complex financial companies: what do supervisors do?
Lucca, David O.; Haughwout, Andrew F.; Hirtle, Beverly; Eisenbach, Thomas M.; Kovner, Anna; Plosser, Matthew (2015-05-01)
The Federal Reserve is responsible for the prudential supervision of bank holding companies (BHCs) on a consolidated basis. Prudential supervision involves monitoring and oversight to assess whether these firms are engaged in unsafe or unsound practices, as well as ensuring that firms are taking corrective actions to address such practices. Prudential supervision is interlinked with, but distinct from, regulation, which involves the development and promulgation of the rules under which BHCs and other regulated financial intermediaries operate. This paper describes the Federal Reserve?s ...
Staff Reports , Paper 729

Report
How do global banks scramble for liquidity? Evidence from the asset-backed commercial paper freeze of 2007
Afonso, Gara M.; Acharya, Viral V.; Kovner, Anna (2013-08-01)
We investigate how banks scrambled for liquidity following the asset-backed commercial paper (ABCP) market freeze of August 2007 and its implications for corporate borrowing. Commercial banks in the United States raised dollar deposits and took advances from Federal Home Loan Banks (FHLBs), while foreign banks had limited access to such alternative dollar funding. Relative to before the ABCP freeze and relative to their non-dollar lending, foreign banks with ABCP exposure charged higher interest rates to corporations for dollar-denominated syndicated loans. The results point to a funding risk ...
Staff Reports , Paper 623

Report
Doing well by doing good? Community development venture capital
Kovner, Anna; Lerner, Joshua (2012)
This paper examines the investments and performance of community development venture capital (CDVC). We find substantial differences between CDVC and traditional venture capital (VC) investments: CDVC investments are far more likely to be in nonmetropolitan regions and in regions with little prior venture capital activity. Moreover, CDVC is likely to be in earlier-stage investments and in industries outside the venture capital mainstream that have lower probabilities of successful exit. Even after we control for this unattractive transaction mix, the probability of a CDVC investment being ...
Staff Reports , Paper 572

Report
Do underwriters matter? The impact of the near loss of an equity underwriter
Kovner, Anna (2010)
The financial crisis provides a natural experiment for testing theoretical predictions of the equity underwriter's role following an initial public offering. Clients of Bear Stearns, Lehman Brothers, Merrill Lynch, and Wachovia saw their stock prices fall almost 5 percent, on average, on the day it appeared that their equity underwriter might collapse. Representing a loss in equity value of more than $3 billion, the decline was more than 1 percent lower than the conditional return predicted by a market model. The price impact was worse for companies with more opaque operations and fewer ...
Staff Reports , Paper 459

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