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Discussion Paper
Cyberattacks and Supply Chain Disruptions
Crosignani, Matteo; Macchiavelli, Marco; Silva, André F. (2021-06-22)
Cybercrime is one of the most pressing concerns for firms. Hackers perpetrate frequent but isolated ransomware attacks mostly for financial gains, while state-actors use more sophisticated techniques to obtain strategic information such as intellectual property and, in more extreme cases, to disrupt the operations of critical organizations. Thus, they can damage firms’ productive capacity, thereby potentially affecting their customers and suppliers. In this post, which is based on a related Staff Report, we study a particularly severe cyberattack that inadvertently spread beyond its ...
Liberty Street Economics , Paper 20210622

Discussion Paper
Do Big Banks Have Lower Operating Costs?
Zhou, Lily; Kovner, Anna; Vickery, James (2014-03-25)
Despite recent financial reforms, there is still widespread concern that large banking firms remain “too big to fail.” As a solution, some reformers advocate capping the size of the largest banking firms. One consideration, however, is that while early literature found limited evidence for economies of scale, recent academic research has found evidence of scale economies in banking, even for the largest banking firms, implying that such caps could impose real costs on the economy. In our contribution to the volume on large and complex banks, we extend this line of research by studying the ...
Liberty Street Economics , Paper 201404325a

Working Paper
Claim Dilution in the Municipal Debt Market
Zimmermann, Thomas; Ivanov, Ivan T. (2018-02-05)
Using loan-level municipal bank lending data, we examine the debt structure of municipalities and its response to exogenous income shocks. We show that small, more indebted, low-income, and medium credit quality counties are particularly reliant on private bank financing. Low income counties are more likely to increase bank debt share after an adverse permanent income shock while high income counties do not shift their debt structure in response. In contrast, only high income counties draw on their credit lines after adverse transitory income shocks. Overall, our paper raises concerns about ...
Finance and Economics Discussion Series , Paper 2018-011

Journal Article
Corporate Profits Contributed a Lot to Inflation in 2021 but Little in 2022—A Pattern Seen in Past Economic Recoveries
Glover, Andrew; Mustre-del-Rio, Jose; Nichols, Jalen (2023-05-12)
Corporate profits rose quickly in 2021 along with inflation, raising concerns about corporations driving up prices to increase profits. Although corporate profits indeed contributed to inflation in 2021, their contribution fell in 2022. This pattern is not unusual: in previous economic recoveries, corporate profits were the main contributor to inflation in the first year and displaced by costs in the second year.
Economic Bulletin

Discussion Paper
In a Relationship: Evidence of Underwriters’ Efforts to Stabilize the Share Price in the Facebook IPO
Shen, Karen; Lucca, David O.; Eisenbach, Thomas M. (2012-10-31)
Stocks are usually offered in initial public offerings (IPOs) at a discount, leading to large first-day IPO returns. When there is a risk of a negative initial return, underwriters are known to actively support the aftermarket price of a stock through buying activities. In this post, we look at the trading book for Facebook stock on May 18, 2012, the day of its highly anticipated IPO. Using what we call a ?large integer?price bid? identification assumption to indirectly infer which investors are bidding, we find evidence of significant trading by underwriters seeking to stabilize the stock?s ...
Liberty Street Economics , Paper 20121031

Discussion Paper
Why Did the Recent Oil Price Declines Affect Bond Prices of Non-Energy Companies?
Li, Brandon; Sarkar, Asani (2016-10-05)
Oil prices plunged 65 percent between July 2014 and December of the following year. During this period, the yield spread?the yield of a corporate bond minus the yield of a Treasury bond of the same maturity?of energy companies shot up, indicating increased credit risk. Surprisingly, the yield spread of non?energy firms also rose even though many non?energy firms might be expected to benefit from lower energy?related costs. In this blog post, we examine this counterintuitive result. We find evidence of a liquidity spillover, whereby the bonds of more liquid non?energy firms had to be sold to ...
Liberty Street Economics , Paper 20161005

Discussion Paper
The Costs of Corporate Debt Overhang Following the COVID-19 Outbreak
Santos, Joao A. C.; Blickle, Kristian S. (2020-12-01)
Leading up to the COVID-19 outbreak, there were growing concerns about corporate sector indebtedness. High levels of borrowing may give rise to a “debt overhang” problem, particularly during downturns, whereby firms forego good investment opportunities because of an inability to raise additional funding. In this post, we show that firms with high levels of borrowing at the onset of the Great Recession underperformed in the following years, compared to similar—but less indebted—firms. These findings, together with early data on the revenue contractions following the COVID-19 outbreak, ...
Liberty Street Economics , Paper 20201201

Working Paper
Self-Fulfilling Debt Crises, Revisited
Stangebye, Zachary; Aguiar, Mark; Cole, Harold L.; Chatterjee, Satyajit (2020-01-22)
We revisit self-fulﬁlling rollover crises by exploring the potential uncertainty introduced by a gap in time (however small) between an auction of new debt and the payment of maturing liabilities. It is well known (Cole and Kehoe, 2000) that the lack of commitment at the time of auction to repayment of imminently maturing debt can generate a run on debt, leading to a failed auction and immediate default. We show that the same lack of commitment leads to a rich set of possible self-fulﬁlling crises, including a government that issues more debt because of the crisis, albeit at depressed ...
Working Papers , Paper 20-03

Discussion Paper
What Do Climate Risk Indices Measure?
Jung, Hyeyoon; Hannaoui, Oliver Zain (2024-10-07)
As interest in understanding the economic impacts of climate change grows, the climate economics and finance literature has developed a number of indices to quantify climate risks. Various approaches have been employed, utilizing firm-level emissions data, financial market data (from equity and derivatives markets), or textual data. Focusing on the latter approach, we conduct descriptive analyses of six text-based climate risk indices from published or well-cited papers. In this blog post, we highlight the differences and commonalities across these indices.
Liberty Street Economics , Paper 20241007

Discussion Paper
Regulatory Changes and the Cost of Capital for Banks
Zborowski, Brandon; Van Tassel, Peter; Kovner, Anna (2018-10-01)
In response to the financial crisis nearly a decade ago, a number of regulations were passed to improve the safety and soundness of the financial system. In this post and our related staff report, we provide a new perspective on the effect of these regulations by estimating the cost of capital for banks over the past two decades. We find that, while banks? cost of capital soared during the financial crisis, after the passage of the Dodd-Frank Act (DFA), banks experienced a greater decrease in their cost of capital than nonbanks and nonbank financial intermediaries (NBFI).
Liberty Street Economics , Paper 20181001a

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