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Discussion Paper
Partnerships between Community Development Financial Institutions and Workforce Development Organizations
Inability to secure capital to improve worker skills or expand training programs can prevent growth in a local economy. This paper presents the role CDFIs can play to fill a need for financing in the workforce development sector. While the transactions presented in this paper are unique, they highlight the importance of partnerships between the two industries. Shared missions and an overlapping client base between CDFIs and workforce development practitioners creates a natural pairing for collaboration. In addition, CDFIs are uniquely able to serve as test beds for innovation because of their ...
Working Paper
Equilibrium with Mutual Organizations in Adverse Selection Economies
An equilibrium concept in the Debreu (1954) theory-of-value tradition is developed for a class of adverse selection economies and applied to the Spence signaling and Rothschild-Stiglitz (1976) adverse selection environments. The equilibrium exists and is optimal. Further, all equilibria have the same individual type utility vector. The economies are large with a finite number of types that maximize expected utility on an underlying commodity space. An implication of the analysis is that the invisible hand works for this class of adverse selection economies.
Report
Zero Settlement Risk Token Systems
How might modern settlement systems with distributed ledger technology achieve zero settlement risk? We consider the design of settlement systems that satisfies two integral features: information-leakage proof and zero settlement risk. Legacy settlement systems partition private information but are vulnerable to settlement fails. A token system with dynamic ownership representation, or a dynamic ledger, can be designed to achieve both, as long as it employs a protocol that enforces two restrictions: programs must be immediately implemented and must involve transactions based on verifiable ...
Working Paper
Concentration of Control Rights in Leveraged Loan Syndicates
We ?nd that corporate loan contracts frequently concentrate control rights with a subset of lenders. Despite the rise in term loans without ?nancial covenants?so-called covenant-lite loans?borrowing ?rms? revolving lines of credit almost always retain traditional ?nancial covenants. This split structure gives revolving lenders the exclusive right and ability to monitor and to renegotiate the ?nancial covenants, and we con?rm that loans with split control rights are still subject to the discipline of ?nancial covenants. We provide evidence that split control rights are designed to mitigate ...
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Regulating Decentralized Systems: Evidence from Sanctions on Tornado Cash
Blockchain-based systems are run by a decentralized network of participants and are designed to be censorship-resistant. We use sanctions imposed by the U.S. Department of Treasury on Tornado Cash (TC), a smart contract protocol, to study the impact and effectiveness of regulation in decentralized systems. We document an immediate and lasting impact on TC following the sanction announcement, measured by market reaction, transaction volume, and diversity of users. Still, net flows into TC contracts recover to and surpass pre-announcement levels for most pools, supporting viability of TC. ...
Working Paper
Operational Loss Recoveries and the Macroeconomic Environment: Evidence from the U.S. Banking Sector
Using supervisory data from large U.S. bank holding companies (BHCs), we document that operational loss recovery rates decrease in macroeconomic downturns. This procyclical relationship varies by business lines and loss event types and is robust to alternative data aggregations, macroeconomic measurement horizons and estimation methodologies. Further analysis shows that resource constraints faced by BHC risk management functions are a plausible explanation for these patterns. Our findings offer new evidence on how economic shocks transmit to banking industry losses with implications for risk ...
Working Paper
An Analytical Price of Stablecoin “Deposit” Insurance
With the passage of the GENIUS Act of 2025, stablecoins are poised to play a greater role in the U.S. financial system. Although very similar to bank deposits, stablecoins lack the government guarantees offered for bank deposits in the form of deposit insurance. This paper is the first to analytically derive the price of hypothetical “deposit” insurance for stablecoins. The price of this insurance is shown to be a function of the volatility of the stablecoin’s price (the price of debt), reflecting Merton’s (1977) deposit insurance pricing model. Empirical estimates of the price of ...
Working Paper
An Analytical Price of Stablecoin “Deposit” Insurance
With the passage of the GENIUS Act of 2025, stablecoins are poised to play a greater role in the U.S. financial system. Although very similar to bank deposits, stablecoins lack the government guarantees offered for bank deposits in the form of deposit insurance. This paper is the first to analytically derive the price of hypothetical “deposit” insurance for stablecoins. The price of this insurance is shown to be a function of the volatility of the stablecoin’s price (the price of debt), reflecting Merton’s (1977) deposit insurance pricing model. Empirical estimates of the price of ...
Report
Systemic Cyber Risk
We propose a quantitative framework to track systemic risk arising from cyber vulnerabilities of the U.S. financial system. Synthesizing financial, economic, cyber, and network data that covers thousands of financial institutions and technological firms, we develop an index that tracks financial-system-level cyber vulnerability (SCV) for the financial system. Geopolitical risk, ransomware and malware incidents, and seasonal factors significantly drive the estimated adversarial component. Estimated technological and financial components exhibit fat tails in the distribution. In the ...
Report
Optimal Design of Tokenized Markets
Trades in today’s financial system are inherently subject to settlement uncertainty. This paper explores tokenization as a potential technological solution. A token system, by enabling programmability of assets, can be designed to eradicate settlement uncertainty. We study the allocations achieved in a decentralized market with either the legacy settlement system or a token system. Tokenization can improve efficiency in markets subject to a limited commitment problem. However, it also materially alters the information environment, which in turn aggravates a hold-up problem. This limits ...