Search Results
Showing results 1 to 9 of approximately 9.
(refine search)
Discussion Paper
The Increased Role of the Federal Home Loan Bank System in Funding Markets, Part 3 : Implications for Financial Stability
This note is the third part in a three part series. Part 1 provides some historical background and discusses key institutional characteristics of the Federal Home Loan Banks (FHLB) System. Part 2 highlights some of the recent trends in the FHLB system and potential drivers of those trends. This note discusses the implication of these developments for financial stability.
Working Paper
Slow capital, fast prices: Shocks to funding liquidity and stock price reversals
A V-shaped price pattern is often observed in financial markets - in response to a negative shock, prices fall "too far" before reversing course. This paper looks at one particular channel of such patterns: the link between a liquidity provider's balance sheet and asset prices. I examine a well-identified historical case study where a large exogenous shock to a liquidity provider's balance sheet resulted in severe capital constraints. Using evidence from German universal banks, who acted as market makers for selected stocks in the interwar period, I show in a difference-in-differences ...
Working Paper
Pushing Bonds Over the Edge: Monetary Policy and Municipal Bond Liquidity
We examine the role of institutional investors in monetary policy transmission to asset markets by exploiting a discontinuous threshold in the tax treatment of municipal bonds. As bonds approach the threshold, mutual funds, the primary institutional traders in the market, dispose of the bonds at significant risk of falling below the threshold. This is driven by mutual funds anticipating future illiquidity. Once bonds cross the threshold, their liquidity declines and illiquidity-induced yield spreads increase substantially as retail investors become more important in price formation. ...
Discussion Paper
The Increased Role of the Federal Home Loan Bank System in Funding Markets, Part 1: Background
The Federal Home Loan Bank (FHLB) system was founded in 1932 to support mortgage lending by thrifts and insurance companies. Over time, the system has grown into a provider of funding for a larger range of financial institutions, including commercial banks and insurance companies. Part 1 of this note provides an overview of the FHLB system. Part 2 highlights some of the recent developments in the FHLB system. And part 3 discusses the implications of these developments for financial stability.
Discussion Paper
Bank Complexity: Is Size Everything?
Can we measure the complexity of large banks by comparing their balance sheets?
Working Paper
Over-the-Counter Market Liquidity and Securities Lending
This paper studies how over-the-counter market liquidity is affected by securities lending. We combine micro-data on corporate bond market trades with securities lending transactions and individual corporate bond holdings by U.S. insurance companies. Applying a difference-in-differences empirical strategy, we show that the shutdown of AIG's securities lending program in 2008 caused a statistically and economically significant reduction in the market liquidity of corporate bonds predominantly held by AIG. We also show that an important mechanism behind the decrease in corporate bond liquidity ...
Working Paper
A margin call gone wrong: Credit, stock prices, and Germany's Black Friday 1927
Leverage is often seen as villain in financial crises. Sudden deleveraging may lead to fire sales and price pressure when asset demand is downward-sloping. This paper looks at the effects of changes in leverage on asset prices. It provides a historical case study where a large, well-identified shock to margin credit disrupted the German stock market. In May 1927, the German central bank forced banks to cut margin lending to their clients. However, this shock affected banks differentially; the magnitude of credit change differed across banks. Using the strong connections between banks and ...
Working Paper
The Effects of Competition in Consumer Credit Markets
Using changes in financial regulation that create exogenous entry in some consumer credit markets, we find that increased competition induces banks to become more specialized and efficient, while deposit rates increase and borrowing costs for riskier collateral decline. However, shadow banks change their credit policy when faced with more competition and aggressively expand credit to riskier borrowers at the extensive margin, resulting in higher default rates. These results show how the form of intermediation can shape economic fluctuations. They also suggest that increased competition can ...
Discussion Paper
The Increased Role of the Federal Home Loan Bank System in Funding Markets, Part 2 : Recent Trends and Potential Drivers
This note is the second part in a three part series. Part 1 provides some historical background and discusses key institutional characteristics of the Federal Home Loan Banks (FHLB) System. This note discusses recent trends in the FHLB system and potential drivers of those trends.