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Working Paper
Securitization markets and central banking: an evaluation of the term asset-backed securities loan facility
In response to the near collapse of US securitization markets in 2008, the Federal Reserve created the Term Asset-Backed Securities Loan Facility, which offered non-recourse loans to finance investors' purchases of certain highly rated asset-backed securities. We study the effects of this program and find that it lowered interest rate spreads for some categories of asset-backed securities but had little impact on the pricing of individual securities. These findings suggest that the program improved conditions in securitization markets but did not subsidize individual securities. We also find ...
Journal Article
Profits and balance sheet developments at U.S. commercial banks in 1998
The performance of the U.S. commercial banking industry remained strong in 1998, but slipped a bit from the remarkable results of recent years. Both the return on assets and the return on equity edged down last year, although they remained high by historical standards. While supported by growth in fee income, profitability was damped by a large decline in the rates banks earned on their interest-bearing assets relative to the rates they paid on their liabilities, and also by higher noninterest costs, especially merger and restructuring expenses. Profitability was uneven last year across bank ...
Working Paper
Why Do We Need Both Liquidity Regulations and a Lender of Last Resort? A Perspective from Federal Reserve Lending during the 2007-09 U.S. Financial Crisis
During the 2007-09 financial crisis, there were severe reductions in the liquidity of financial markets, runs on the shadow banking system, and destabilizing defaults and near-defaults of major financial institutions. In response, the Federal Reserve, in its role as lender of last resort (LOLR), injected extraordinary amounts of liquidity. In the aftermath, lawmakers and regulators have taken steps to reduce the likelihood that such lending would be required in the future, including the introduction of liquidity regulations. These changes were motivated in part by the argument that central ...
Working Paper
Interpreting the significance of lagged interest rate in estimated monetary policy rules
Many researchers have found that the lagged interest rate enters estimated monetary policy rules with overwhelming significance. However, a recent paper by Rudebusch (2002) argues that the lagged interest rate is not a fundamental component of the U.S. policy rule, and that its significance arises from the omission of serially correlated variables from the policy rule. This paper demonstrates that, contrary to Rudebusch's claims, these two hypotheses can be directly distinguished in the estimation of the policy rule. Our findings indicate that while serially correlated omitted variables may ...
Working Paper
Using policy intervention to identify financial stress
This paper describes the construction of a financial stress index. This stress index differs from other indexes in that it incorporates the co-movement and volatility of financial series as well as the levels of the series. Our index also uses past experience more than others to guide the assessment about which characteristics of the data suggest financial stress exists. In addition to describing the construction of our financial stress index, we spend some time discussing issues relevant to the general construction of stress indexes.
Journal Article
Criteria for central bank assets: lessons from pre-ECB France
The Banque de France was founded in 1800 to discount bills and issue currency. Initially, it was a private institution run by its stockholders. The Banque was nationalized in 1936 and its governing council was staffed by officials with a mandate to represent various interests in society. The Banque's autonomy was largely restored in 1973, and the Banque became officially independent in 1994. Whereas the Banque had originally lent appreciable sums to the Treasury, such lending was scheduled to be eliminated beginning in 1993 as part of the move toward monetary union. At that time the monetary ...
Conference Paper
Bank risk rating of business loans
Journal Article
Criteria for central bank assets: lessons from pre-ECB Germany
The Deutsche Bundesbank was formed in July 1957, when the two-tier central bank system set up following World War II was consolidated. That previous system had been established by the Allies in imitation of the Federal Reserve System and consisted of independent regional banks (the Land Central Banks) and a governing body. Under the new system, the Land Central Banks became offices of the Bundesbank. As was true under the previous system, the Bundesbank was made independent of the federal cabinet by law and was particularly proscribed from lending to the public sector except for short terms. ...
Working Paper
Central banks as lender of last resort: experiences during the 2007-2010 crisis and lessons for the future
During the 2007-2010 financial crisis, central banks accumulated a vast amount of experience in acting as lender of last resort. This paper reviews the various ways that central banks provided emergency liquidity assistance (ELA) during the crisis, and discusses issues for the design of ELA arising from that experience. In a number of ways, the emergency liquidity assistance since 2007 has largely adhered to Bagehot's dictums of lending freely against good collateral to solvent institutions at a penalty rate. But there were many exceptions to these rules. Those exceptions illuminate the ...