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Working Paper
Technology Providers and Financial Stability: Overview of Risks and Regulatory Frameworks
Garza, Lorenzo; Chmielewski, Rebecca; Schulhofer-Wohl, Sam; Cowperthwait, Patricia K.; Cho, Meeoak; Amromin, Gene; Solimine, Brett; Anadu, Kenechukwu E.; Sanders, Siobhan; Chapel, Amy; Weiss, Emma; Hull, Cindy E.; Bräuning, Falk (2025-06-23)
Technology-focused Third-Party Service Providers (TPSPs) have become important players in the operations of financial institutions and the financial markets. This paper summarizes micro- and macro-prudential regulatory frameworks in place to address risks that TPSPs pose to the financial system. The key takeaways are as follows: First, in the U.S., TPSPs operate under limited comprehensive prudential regulatory oversight, aimed primarily at ensuring that their products are safe and resilient on an ongoing basis. Second, while banks rely on multiple TPSPs and hundreds of their services daily ...
Working Paper Series , Paper WP 2025-08

Working Paper
The Credit Card Spending Channel of Monetary Policy: Micro Evidence from Account-level Data
Bräuning, Falk; Stavins, Joanna (2025-09-01)
Monetary policy impacts consumer spending via the effect of interest rate changes on credit card borrowing. Using supervisory account-level spending and balance data, we estimate that a 1 percentage point increase in the interest rate reduces credit card spending by nearly 9 percent and revolving balances by close to 4 percent. Aggregate results are primarily driven by revolving accounts, while we estimate small and statistically insignificant interest-rate elasticity for transaction accounts. Consistent with financial constraints, low-credit-score accounts tend to adjust spending, while ...
Working Papers , Paper 25-10

Working Paper
Monetary policy and global banking
Ivashina, Victoria; Bräuning, Falk (2016-12-23)
Global banks use their global balance sheets to respond to local monetary policy. However, sources and uses of funds are often denominated in different currencies. This leads to a foreign exchange (FX) exposure that banks need to hedge. If cross?currency flows are large, the hedging cost increases, diminishing the return on lending in foreign currency. We show that, in response to domestic monetary policy easing, global banks increase their foreign reserves in currency areas with the highest interest rate, while decreasing lending in these markets. We also find an increase in FX hedging ...
Working Papers , Paper 17-5

Working Paper
Real Effects of Foreign Exchange Risk Migration: Evidence from Matched Firm-Bank Microdata
Bräuning, Falk; Abbassi, Puriya (2020-07-01)
When firms trade forward contracts with banks to protect foreign currency cash flows against exchange rate movements, foreign exchange risk migrates to the banking sector. We show how this migrated risk may induce systemic repercussions with severe implications for the real economy. For identification, we exploit the Brexit referendum in June 2016 as a quasi-natural experiment in combination with detailed microdata on forward contracts and the credit register in Germany. Before the referendum, firms substantially increased their use of derivatives in response to the heightened uncertainty; ...
Working Papers , Paper 20-8

Working Paper
Output Spillovers from U.S. Monetary Policy: The Role of International Trade and Financial Linkages
Bräuning, Falk; Sheremirov, Viacheslav (2019-10-01)
We estimate that U.S. monetary policy has sizable spillover effects on global economic activity. In response to a surprise increase in the federal funds rate of 25 basis points, real output in our sample of 44 countries declines on average by 0.9% after three years. We find that international trade is a more important factor than international finance in explaining these spillovers. In particular, countries with a high share of exports and imports in output have 79% larger responses than countries with a low share, whereas we do not find significant heterogeneity depending on a country’s ...
Working Papers , Paper 19-15

Evolving leveraged loan covenants may pose novel transmission risk
Ozdagli, Ali; Ivashina, Victoria; Bräuning, Falk; Owen, Jackson (2024-08-20)
An evolving change affecting the expanding, highly leveraged corporate loan sector may impact how the economy responds to adverse shocks.
Dallas Fed Economics

Working Paper
High-Yield Debt Covenants and Their Real Effects
Bräuning, Falk; Ivashina, Victoria; Ozdagli, Ali (2023-08-22)
High-yield debt, including leveraged loans, features incurrence financial covenants or "cov-lite" provisions. These covenants differ from traditional loans' maintenance covenants, as they preserve equity control rights but impose specific restrictions on the borrower after crossing the covenant threshold. Contrary to the prevailing belief that incurrence covenants offer limited protection for creditors, our research reveals a significant and sudden decline in investment upon triggering these covenants. This evidence highlights a novel propagation mechanism for economic shocks, wherein ...
Working Papers , Paper 2311

Report
The Historical Effects of Banking Distress on Economic Activity
Bräuning, Falk; Sheremirov, Viacheslav (2023-05-25)
The failures of several U.S. regional banks have stimulated discussions about the macroeconomic effects of a likely credit contraction triggered by the recent banking turmoil. Drawing on historical evidence from advanced economies, this study documents a sizable and persistent decline in output and rise in unemployment following non-systemic financial distress. The effects of a systemic banking crisis are two to four times as large. High corporate leverage exacerbates banking turmoil, whereas high bank capitalization and a relatively large share of market financing in corporate debt mitigate ...
Current Policy Perspectives

Report
A Helping Hand to Main Street Where and When It Was Needed
Wang, J. Christina; Fillat, Jose; Bräuning, Falk; Lin, Frankie (2021-05-27)
This paper investigates the lending activity of the Main Street Lending Program, which the Federal Reserve established at the onset of the COVID-19 pandemic in spring 2020. Main Street was the largest (by total principal outstanding) of the Federal Reserve's emergency credit and liquidity facilities. The authors find fairly robust evidence that Main Street accomplished its key goal of directing more funds where and when they were most needed. Businesses located in states with more severe declines in commercial activity (as proxied by mobility indicators) and higher infection rates obtained a ...
Current Policy Perspectives

Report
Interest Expenses, Coverage Ratio, and Firm Distress
Bräuning, Falk; Joaquim, Gustavo; Stein, Hillary (2023-08-29)
Historically, the pass-through of federal funds rate increases into firms’ interest expenses has been incomplete and delayed, with the peak responses occurring about one year after a policy rate increase. These findings indicate that current corporate interest rate expenses will continue to increase, even absent any additional rate hikes going forward. Higher interest expenses can lead to firm distress and defaults, which have adverse effects on employment and investment. These effects can be amplified through the financial accelerator channel.
Current Policy Perspectives

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