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Working Paper
Deposit Convexity, Monetary Policy and Financial Stability
In principle, bank deposits can be withdrawn on demand. In practice, depositors tend to maintain stable balances for long periods, allowing banks to fund long-dated assets. Nevertheless, the cost of deposit funding influences banks’ capacity for maturity transformation. Banks and researchers conventionally model the response of deposit interest rates to market interest rates as constant, implying that deposits have nearly constant duration. Contrary to this standard assumption, we show empirically that the “beta” of deposit rates to market rates increases as market rates rise, causing ...
Working Paper
Payments Crises and Consequences
Banking-system shutdowns during contractions scar economies. Four times in the lastforty years, governors suspended payments from state-insured depository institutions. Suspensionsof payments in Nebraska (1983), Ohio (1985), and Maryland (1985), which wereshort and occurred during expansions, had little measurable impact on macroeconomic aggregates.Rhode Island’s payments crisis (1991), which was prolonged and occurred duringa recession, lengthened and deepened the downturn. Unemployment increased. Outputdeclined, possibly permanently relative to what might have been. We document these ...
Newsletter
Interest-only mortgages and speculation in hot housing markets
Even as housing markets have temporarily shut down across the U.S. during the Covid-19 pandemic, housing remains a key sector that contributes disproportionately to fluctuations in overall economic activity and that will likely play an important role as the economy reopens. Interest in this market among research economists and policymakers intensified after the exceptional boom and bust in housing between 2003 and 2008. In this Chicago Fed Letter, we describe research in Barlevy and Fisher (2020)1 that examined patterns in the kinds of mortgages homebuyers took out in different cities during ...
Briefing
Market Structure of Core Banking Services Providers
Three core providers dominate the market for core banking systems for depository institutions (DIs). These providers also have a large presence in vertically related markets, such as card network services; payment processing services for DIs, merchants, or governments; and banking-as-a-service. This market structure may make it difficult for DIs to switch their core providers, affecting their ability to offer new services and stay competitive.