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Journal Article
The Offshore Dollar and US Policy
Dollar borrowing outside the United States has over generations grown to be very large, with US policy providing some inducement and, in critical episodes, support. But in lending dollars through open-ended central bank swaps in 2008 and 2020, the Fed broke new ground as international lender of last resort. By countering dollar runs on non-US banks, the Fed supplied the global public good of financial stability. In addition, it restored domestic US monetary transmission. In 2020 the Fed's last-resort buying of domestic corporate bonds also did double duty, stabilizing the global dollar bond ...
Journal Article
How Much Do Guarantees and Bailouts Cost the Government?
Governments in advanced economies absorb a large and growing share of aggregate credit risk. That exposure arises from explicit and implicit contingent liabilities such as the ones that culminated in bailouts during the Global Financial Crisis (GFC) and from loan guarantees extended during the Covid-19 pandemic. Despite the growth of credit policy as a crisis response tool and substitute for traditional fiscal assistance, governments continue to underreport the associated costs and risks. More comprehensive and timely cost estimates, produced using a fair value framework, would increase ...
Dallas Fed, Latin American central banks explore financial stability risks
The COVID-19 pandemic, recent monetary tightening and a strengthening U.S. dollar were the themes explored during a recent conference organized by the Federal Reserve Bank of Dallas and the Center for Latin American Monetary Studies (CEMLA) and held at CEMLA’s Mexico City headquarters.
Capital flowed from emerging markets as pandemic, economic cycle took hold
Fluctuations in the global financial cycle, reflecting impacts from the COVID crisis, account for roughly one-third of the movement in emerging-market inflows during 2020–23.
The connection between banking and sovereign crises
Dallas Fed economist Sewon Hur examines how sovereign debt crises can amplify banking problems.
Treasuries’ allure as safe haven noted in short maturities, not in long bonds
The United States has a large negative net-foreign-asset position, especially in safe assets. In times of crisis, U.S. government debt, especially short-term Treasuries, are viewed as a safe haven. As a result, the U.S. is a net debtor. It is more leveraged and tends to hold more risky assets (mostly equities) and finance those positions by selling safe-asset debt to the rest of the world.
Emerging-market countries insulate themselves from Fed rate hikes
Earlier episodes of sizable Fed tightening preceded destabilizing currency devaluations in emerging markets, precipitating sovereign debt and banking crises in many of those economies
Swap lines curbed global dollar shortages, appreciation during COVID-19 crisis
During the initial weeks of the COVID-19 crisis, imbalances in the offshore dollar funding market led to safe-haven appreciation of the dollar. Fed swap lines between the U.S. central bank and counterparts abroad addressed these imbalances, subsequently helping reduce the cost of offshore dollar borrowing, reversing dollar appreciation and providing liquidity.
Anticipatory discount window stigma
Observers often assert that stigma—a perception that depositors, investors or others will penalize an institution for borrowing from the discount window—keeps banks from borrowing when they should, making the facilities less effective. Dallas Fed Senior Vice President Sam Schulhofer-Wohl argues that some harms of discount window stigma can be mitigated regardless of whether stigma itself persists.
Report
The Historical Effects of Banking Distress on Economic Activity
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 ...