reference library

Corporate bond markets proved remarkably resilient against a sharp contraction caused by the 2020 Covid-19 pandemic. We document three important findings: (1) bond issuance increased immediately when the contraction hit,…
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The 2008 financial crisis exposed a longstanding problem in financial regulation: traditional regulatory strategies tend to be procyclical. That is, regulatory tools—most notably, bank capital requirements—incentivize excessive credit growth during…
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The mortgage market experienced a historic boom in 2020, with record origination volumes and lender profits. While many borrowers benefited from record-low mortgage rates, the pass-through of lower rates to…
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We study the long-run outcomes associated with hedge funds’ compensation structure. Over a 22-year period, the aggregate effective incentive fee rate is 2.5 times the average contractual rate (i.e., around…
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We measure popular sentiment toward finance using a computational linguistics approach applied to millions of books published in eight countries over hundreds of years. We document persistent differences in finance…
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There are two prevailing theories of borrower default: strategic default—when debt is too high relative to the value of the house—and adverse life events—such that the monthly payment is too…
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We investigate the impact on firms of joining the S&P 500 index from 1997 to 2017. We find that the positive announcement effect on the stock price of index inclusion…
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The Dodd-Frank Wall Street Reform and Consumer Protection Act (commonly known as Dodd-Frank), which was intended to address perceived problems in the financial system and prevent future crises, is the…
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We analyze the determinants and the long-run consequences of government interventions in the eurozone banking sector during the 2008/09 financial crisis. Using a novel and comprehensive dataset, we document that…
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Bank holding companies (BHCs) can be complex organizations, conducting multiple lines of business through many distinct legal entities and across a range of geographies. While such complexity raises the costs…
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We quantify the impact of bank market power on monetary policy transmission through banks to borrowers. We estimate a dynamic banking model in which monetary policy affects imperfectly competitive banks’…
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In March of 2020, banks faced the largest increase in liquidity demands ever observed. Firms drew funds on a massive scale from pre-existing credit lines and loan commitments in anticipation…
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This study examines the effect of policy uncertainty on corporate debt maturity structure. We find that elevated levels of policy uncertainty lead firms to shorten debt maturity, indicating that firms…
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This paper compares the out-of-sample predictive performance of different early warning models for systemic banking crises using a sample of advanced economies covering the past 45 years. We compare a…
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Market share of conforming-size, home purchase mortgage originations has steadily and substantially shifted from banking institutions to nonbank lenders over recent years. In 2017, nonbanks originated more than 1.8 million…
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We examine the cleansing effect of financial crises via their contribution to the exit of inefficient US commercial banks from 1984 to 2013. We find a larger increase in the…
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Recent evidence suggests an increasing risk of natural disasters of the magnitude of hurricane Katrina and Sandy. Concurrently, the number and volume of flood insurance policies has been declining since…
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We study the market for ratings agencies in the commercial mortgage backed securities sector leading up to and including the financial crisis of 2007–2008. Using a structural model adapted from…
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The 2008 crisis created a need to rethink many aspects of economic theory, including the role of public intervention in the economy. On this issue, we explore the Barro-Ricardo equivalence,…
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A series of statutory provisions codified at Title 12 of the U.S. Code empower special government officials known as supervisors to examine banks and tell bankers what to do, not…
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Brokers continue to play a critical role in intermediating institutional stock market transactions. More than half of all institutional investor order flow is still executed by high-touch (non-electronic) brokers. Despite…
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Pre-crisis estimates of the jumbo-conforming spread, utilizing a variety of methodologies, ranged from 10 to 25 basis points. In the post-crisis period, this spread has decreased and has been negative…
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We propose a contingent clawback bond (COCLA) as an alternative source of contingent convertible capital (CoCo). We develop a utility maximization model in which a bank manager faces the following…
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Over the last decade, macroprudential policy has made important advances and become more widely used. We have a better understanding of its goals and tools, and are accumulating evidence that…
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We investigate the effect of house prices on household borrowing using administrative mortgage data from the United Kingdom and a new empirical approach. The data contain household-level information on house…
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This paper shows that a macro model with segmented financial markets can generate sizable movements in housing prices in response to changes in credit conditions. We establish theoretically that reductions…
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Liquidity shocks transmitted through interbank connections contributed to bank distress during the Great Depression. New data on interbank connections reveal that banks were much more likely to close when their…
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We investigate how communication within banks affects small business lending. Using travel time between a bank’s headquarters and its branches to proxy for the costs of communicating soft information, we…
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This paper seeks to refine our understanding of how refinancing a mortgage affects household outcomes. This issue has attracted particular attention in the wake of the Great Recession, however, there…
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This paper studies the country-level reaction of bank credit default swap (“CDS”) spreads and stock prices to bailout announcements in the US and five European countries in October 2008. Bailouts…
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We construct theory-based measures of systemic bank shocks. These measures complement banking crisis indicators employed in many empirical studies, which we show capture (lagged) policy responses to systemic bank shocks….
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We propose a distress measure for national banking systems that incorporates not only banks’ CDS spreads, but also how they interact with the rest of the global financial system via…
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This report presents the Federal Reserve Board’s current assessment of the resilience of the U.S. financial system. By publishing this report, the Board intends to promote public under- standing and…
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In this paper, I employ anonymous New York City yellow taxi records to infer variation in interactions between insiders of the Federal Reserve Bank of New York (New York Fed)…
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“This report presents the results of the Basel Committee’s latest Basel III monitoring exercise, based on data as of 30 June 2018. Through a rigorous reporting process, the Committee regularly…
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While both size and complexity are important for the largest U.S. bank holding companies (BHCs), specific types of complexity and their patterns across banks are not well understood. We introduce…
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Economic recoveries can be slow, fast, or involve double dips. This paper provides an explanation based on the dynamic interactions between bank lending standards and firm entry selection. In the…
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Most economists differ, not on the causes of the Great Recession, but on their relative importance. They concur, though, on the basic problem, namely human, not market failure. This study…
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In any search for policies that slow growth and drive inequality, financial regulation is an obvious place to start. After all, the financial sector was Ground Zero for the worst…
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With the national unemployment rate running below 4 percent, the possibility that an overheated economy could lead to financial imbalances, which in turn could generate or amplify economic distress, has…
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An overheated economy has the potential to lead to financial imbalances, which in turn could generate or amplify economic distress. In two complementary FEDS notes, we study the link between…
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We show that the distribution of combined loan-to-value ratios (CLTVs) for purchase mortgages in the U.S. has been remarkably stable over the last 25 years. But there was a dramatic…
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Between 1998 and 2006, house prices in the United States rose by about 90 percent but subsequently experienced a sharp decline by about a third until 2010. These house‐​price developments…
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Yesterday, the Federal Reserve released the results of the 2018 Comprehensive Capital Analysis and Review (CCAR). As described in previous TCH’s posts, the 2018 results were crucially driven by the…
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We examine the negative relationship between the rate of growth in credit and the rate of growth in output per worker. Using a panel of 20 countries over 25 years,…
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Banking regulators such as the Office of the Comptroller of the Currency (OCC) can implement policies to address the risk of regulatory capture. The objectives of these policies include reducing…
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In canonical models with financial constraints, the possibility of fire sales creates a pecuniary externality that results in ex-ante overinvestment. I show that this result is sensitive to the microfoundations…
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The economic link between globalization and income distribution has been rigorously studied from the perspectives of the international-trade paradigm. However, the international-trade viewpoint does not address the impact of globalization…
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In this study, we provide a measure of the severity of the 2014-2018 US supervisory stress tests, and examine how that severity measure has evolved. Since the passage of the…
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We present a model in which households facing income and housing-price shocks use long-term mortgages to purchase houses. Interest rates on mortgages reflect the risk of default. The model accounts…
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This study reports estimates of the marginal benefits and costs of increasing the regulatory minimum bank equity-to-asset “leverage ratio” from 4 to 15 percent. Benefits arise from reducing the probability…
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We study the resolution of global banks by national regulators. Single-point-of-entry (SPOE) resolution, where loss-absorbing capital is shared across jurisdictions, is efficient but may not be implementable. First, when expected…
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According to “Schwartz’s conventional wisdom” and what has been called “divine coincidence”, price stability should imply macroeconomic and financial stability. However, in light of the global financial crisis, with monetary…
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Since the onset of the Great Recession, an explosion of both theoretical and empirical research has investigated how the financial crisis emerged and how it was transmitted to the real…
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Bank failures are generally liquidity as well as solvency events. Whether it is households running on banks or banks running on banks, defunding episodes are full of drama. This theater…
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This paper empirically investigates the link between financial structure and income inequality. Using data for a panel of 97 economies over the period 1989-2012, we find that the relationship is…
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With the main elements of the G20 reforms agreed and implementation underway, an analysis of the effects of these reforms is becoming possible. To that end, the FSB developed a…
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Among the perks of being a bank is the privilege of holding an account with the central bank. Unavailable to individuals and nonbank businesses, central bank accounts pay higher interest…
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A few academic papers have recently indicated that banks with a greater amount of capital tend to lend more as a result of lower funding costs. This evidence has been…
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This paper analyzes the relationship between bank lobbying and supervisory decisions of regulators and documents its moral hazard implications. Exploiting bank-level information on the universe of commercial and savings banks…
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Since the 2008 financial crisis, banking regulators’ capital enhancement efforts have focused on permitting systemically important financial institutions to issue alternative forms of debt and quasi-debt instruments as a means…
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This note proposes a recalibration of the global systemically important bank holding company (GSIB) capital surcharge that takes into account the impact of the liquidity coverage ratio (LCR) – one…
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Banks’ ratio of the market value to book value of their equity was close to 1 until the 1990s, then more than doubled during the 1996-2007 period, and fell again…
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This report starts by outlining the lax oversight of nonbank financial companies and the systemic-risk regulatory gaps that existed before the 2007–2008 financial crisis. Next, the report charts the development…
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The decentralized structure of the Federal Reserve System is evaluated as a mechanism for generating and processing new ideas on monetary and financial policy. The role of the Reserve Banks…
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As a consequence of the large-scale asset purchases by the Federal Reserve during its quantitative easing operations that began during the Great Recession in 2008, the Fed’s interest income increased…
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We provide new, time-varying estimates of the housing wealth effect back to the 1980s. We exploit systematic differences in city-level exposure to regional house price cycles to instrument for house…
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We investigate whether the introduction of fixed-price U.S. federal deposit insurance in 1933 increased the risk-taking of banks over the succeeding period. We examine 60 financial institutions and find that…
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Nominal stock prices are arbitrary. Therefore, when evaluating how a piece of news should affect the price of a stock, rational investors should think in percentage rather than dollar terms….
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The U.S. government guarantees a majority of residential mortgages, which is often justified as a means to promote homeownership. In this paper we use property-level data to estimate the effect…
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This annual assessment consists of two primary components: The Dodd-Frank Act stress test (DFAST) is a forward-looking quantitative evaluation of bank capital that demonstrates how a hypothetical set of stressful…
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Financial sector wages increased extraordinarily over the last decades. An explanation for this trend is that skill demand rose more in finance than other sectors. We use Swedish administrative data,…
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Reliance on macroprudential tools is problematic in several ways. First, in spite of reforms to the regulation of bank capital, high leverage, regulatory complexity, and public-sector guarantees continue to be…
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At moderate levels, debt improves welfare and enhances growth. But high levels can be damaging. When does debt go from good to bad? We address this question using a new…
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Does the use of assumed investment returns to value liabilities and calculate required contributions lead public pension plans to invest more in risky assets? The analysis finds that, even after…
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The Community Reinvestment Act (CRA) requires banks to lend to low- and moderate-income (LMI) households in the areas where they take deposits. But it has become obsolete. When the CRA…
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This paper provides a comprehensive, global database of deposit insurance arrangements as of 2013. We extend our earlier dataset by including recent adopters of deposit insurance and information on the…
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Financial crisis can trigger policy reversals, i.e. they can lead to a process of re- regulation of financial markets. Using a recent comprehensive dataset on financial liberalization across 94 countries…
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We provide direct evidence of leverage-induced fire sales contributing to a market crash using account-level trading data for brokerage- and shadow-financed margin accounts during the Chinese stock market crash of…
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Fannie Mae and Freddie Mac were originally chartered as government-sponsored enterprises (GSEs) to ensure a stable supply of credit for mortgages nationwide. They dominate the secondary (resale) market for residential…
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We use exogenous variation in the degree of restrictions to bank competition across Italian provinces to study both the effects of bank regulation and the impact of deregulation. We find…
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This paper argues that the debt forgiveness provided by the U.S. consumer bankruptcy system helped stabilize employment levels during the Great Recession. We document that over this period, states with…
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Since the 2009 Supervisory Capital Assessment Program (SCAP), US regulators have employed a representative bank model as the benchmark of comparison in mandatory stress test exercises. For risk management functions,…
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In addressing the stated topics, the RTF-CCyB work stream aimed at shedding light on some of the relevant mechanisms and likely implications for bank lending and the broader economy. The…
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Multi-year forecasts of bank performance under stressful economic conditions determine large institution regulatory capital requirements and yet the accuracy of these forecasts is undocumented. I compare the accuracies of alternative…
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The Tax Cuts and Jobs Act (TCJA) is expected to increase after-tax profits for most companies, primarily by lowering the top corporate statutory tax rate from 35 percent to 21…
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Since the 2009 Supervisory Capital Assessment Program (SCAP), US regulators have employed a representative bank model as the benchmark of comparison in mandatory stress test exercises. For risk management functions,…
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The Great Recession during the late 2000s and early 2010s has led to a strengthening of macroprudential policies over the world in order to address systemic risk concerns. However, the…
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After the boom in US subprime lending came the bust – with a run on US shadow banks. The magnitude of boom and bust were, it seems, amplified by two…
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This paper examines the interaction between monetary policy and financial stability and provides an assessment of the implications of banks’ risk management practices for monetary policy. By considering the desire…
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A common view of retail finance is that conflicts of interest contribute to the high cost of advice. Within a large sample of Canadian financial advisors and their clients, however,…
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We quantify the size of a fire-sale externality in the derivatives market in the absence of a macroprudential buffer on top of microprudential initial margin requirements. We show how this…
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We analyze the competitive effects of government bail-out policies in two models with different degrees of transparency in the banking sector. Our main result is that bail-outs lead to higher…
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In 2010, the Basel Committee on Banking Supervision published an assessment of the long-term economic impact (LEI) of stronger capital and liquidity requirements (BCBS (2010)). This paper considers this assessment…
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When the FSB adopted the Key Attributes in 2011 it was agreed to develop further guidance on their implementation, taking into account the need for implementation to accommodate different national…
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The Financial Crisis began and accelerated in short-term money markets. One such market is the multi-trillion dollar sale-and-repurchase (“repo”) market, where prices show strong reactions during the crisis. The academic…
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Securities industry pretax profits grew by 42 percent in 2017 on higher revenue from core activities. That momentum has carried into 2018, with profits rising by 11 percent during the…
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Recent evidence suggests an increasing risk of natural disasters of the magnitude of hurricane Katrina and Sandy. Concurrently, the number and volume of flood insurance policies has been declining since…
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Brad M. Barber, Wei Jiang, Adair Morse, Manju Puri, Heather Tookes, and Ingrid M. Werner

NBER

February 2021

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