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Working Paper
Why Does the Yield Curve Predict GDP Growth? The Role of Banks
Schneider, Andrés; Minoiu, Camelia; Wei, Min (2025-07-01)
We show that the slope of the yield curve affects bank lending and economic activity through an "expected bank profitability channel." Using detailed banking data and term premium shocks identified via instrumental variables or event studies, we show that a steeper yield curve—when driven by higher term premiums rather than higher expected short rates—increases bank profits and loan supply. Intuitively, a higher term premium raises the expected returns from maturity transformation—a core banking activity—thereby incentivizing bank lending. This effect is more pronounced for banks with ...
FRB Atlanta Working Paper , Paper 2025-5

Report
Faster payments: market structure and policy considerations
Stavins, Joanna; Manuszak, Mark D.; Hayashi, Fumiko; Baughman, Garth; Stewart, Kylie; Rosenbaum, Aaron (2017-09-21)
The U.S. payments industry is in the process of developing ubiquitous, safe, faster electronic solutions for making a broad variety of business and personal payments. How this market for faster payments will evolve will be shaped by a range of economic forces, such as economies of scale and scope, network effects, switching costs, and product differentiation. Emerging technologies could alter these forces and lead to new organizational arrangements or market structures that are different from those in legacy payment markets to date. In light of this uncertainty, this paper examines three ...
Current Policy Perspectives , Paper 17-4

Report
Uncovering covered interest parity: the role of bank regulation and monetary policy
Bräuning, Falk; Puria, Kovid (2017-06-01)
We analyze the factors underlying the recent deviations from covered interest parity. We show that these deviations can be explained by tighter post-crisis bank capital regulations that made the provision of foreign exchange swaps more costly. Moreover, the recent monetary policy and related interest rate divergence between the United States and other major foreign countries has led to a surge in demand for swapping low interest rate currencies into the U.S. dollar. Given the higher bank balance sheet costs resulting from these regulatory changes, the increased demand for U.S. dollars in the ...
Current Policy Perspectives , Paper 17-3

Working Paper
Does Differential Treatment Translate to Differential Outcomes for Minority Borrowers? Evidence from Matching a Field Experiment to Loan-Level Data
Hawley, Zackary; Hanson, Andrew; Martin, Hal (2017-03-22)
This paper provides evidence on the relationship between differential treatment of minority borrowers and their mortgage market outcomes. Using data from a field experiment that identifies differential treatment matched to real borrower transactions in the Home Mortgage Disclosure Act (HMDA) data, we estimate difference-in-difference models between African American and white borrowers across lending institutions that display varying degrees of differential treatment. Our results show that African Americans are more likely to be in a high-cost (subprime) loan when borrowing from lenders that ...
Working Papers (Old Series) , Paper 1703

Working Paper
Differential Capital Requirements: Leverage Ratio versus Risk-Based Capital Ratio from a Monitoring Perspective
Balasubramanyan, Lakshmi (2014-10-02)
In this paper, I attempt to amalgamate the study of leverage-ratio performance with the monitoring decisions of a profit-maximizing bank. Applying tools used in studying the industrial organization of banking, my paper serves as a first step to tying the performance differences between the leverage and risk-based constraints to the more fundamental issue of monitoring. Does a bank faced with a leveragebased capital constraint monitor its loans better than a bank under a risk-based capital constraint? In a market that is characterized by a dominant bank and fringe banks, I seek to understand ...
Working Papers (Old Series) , Paper 1415

Working Paper
Stress Tests and Small Business Lending
Cortes, Kristle Romero; Li, Lei; Demyanyk, Yuliya; Strahan, Philip E.; Loutskina, Elena (2018-03-01)
Post-crisis stress tests have altered banks? credit supply to small business. Banks affected by stress tests reduce credit supply and raise interest rates on small business loans. Banks price the implied increase in capital requirements from stress tests where they have local knowledge, and exit markets where they do not, as quantities fall most in markets where stress-tested banks do not own branches near borrowers, and prices rise mainly where they do. These reductions in supply are concentrated among risky borrowers. Stress tests do not, however, reduce aggregate credit. Small banks ...
Working Papers (Old Series) , Paper 1802

Working Paper
The Impact of Missed Payments and Foreclosures on Credit Scores
Demyanyk, Yuliya (2014-10-27)
This paper debunks the common perception that ?foreclosure will ruin your credit score.? Using individual-level data from a credit bureau matched with loan-level mortgage data, it is estimated that the very first missed mortgage payment leads to the biggest reduction in credit scores. The effects of subsequent loan impairments are increasingly muted. Post-delinquency foreclosures have only a minimal effect on credit scores. Moreover, credit scores improve substantially a year after borrowers experience 90-day delinquency or foreclosure. The data supports one possible explanation of this ...
Working Papers (Old Series) , Paper 1423

Working Paper
Can Reputation Ensure Efficiency in the Structured Finance Market? Majority Voting: A Quantitative Investigation
Elamin, Mahmoud (2015-01-07)
In Elamin (2013), the credit rating agency (CRA) cannot credibly fully reveal its information about the quality of a rated structured finance project, when ratings are unverifiable. Can the fear of losing its reputation discipline the CRA? In this paper, there is incomplete information about the type of the CRA. With some probability, it can be a truthful type, always fully revealing its information. At every period, the (updated) probability that the CRA is of the truthful type is its reputation. With only two project types and when the CRA?s reputation is high enough, an informationally ...
Working Papers (Old Series) , Paper 1441

Working Paper
Federal Reserve Structure, Economic Ideas, and Banking Policy During the "Quiet Period" in Banking
Bordo, Michael D.; Prescott, Edward Simpson (2025-01-06)
We evaluate the decentralized structure of the Federal Reserve System as a mechanism for generating and processing new ideas on banking policy in the 1950s and 1960s. We document that demand for research and analysis was driven by banking industry developments and legal changes that required the Federal Reserve and other banking regulatory agencies to develop guidelines for bank mergers. In response to these developments, the Board and the Reserve Banks hired industrial organization economists and young economists out of graduate school who brought in the leading theory of industrial ...
Working Papers , Paper 25-01

Working Paper
Global banking and international business cycles
Kollmann, Robert; Müller, Gernot J.; Enders, Zeno (2011)
This paper incorporates a global bank into a two-country business-cycle model. The bank collects deposits from households and makes loans to entrepreneurs, in both countries. It has to finance a fraction of loans using equity. We investigate how such a bank capital requirement affects the international transmission of productivity and loan default shocks. Three findings emerge. First, the bank's capital requirement has little effect on the international transmission of productivity shocks. Second, the contribution of loan default shocks to business cycle fluctuations is negligible under ...
Globalization Institute Working Papers , Paper 72

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