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Review of U.S. Business Bankruptcies During the COVID-19 Pandemic
In this note, we review trends in U.S. business bankruptcy filings between 2019 and the third quarter of 2021, with a focus on the COVID-19 pandemic period. We examine macro trends in business bankruptcies as well as conduct an in-depth review of industries hardest hit by the pandemic, including hotels, retail and restaurants. We find that, thus far, the anticipated surge in bankruptcies has largely not materialized, including in the aforementioned industries. Official sector actions, including those by the Federal Reserve, played a key role in offsetting the negative impact on businesses of ...
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Déjà vu All Over Again? Learning from Nonfinancial Business Credit Booms and Busts of the Past
I study nonfinancial business credit booms that took place in the United States, the Nordic Countries, and Korea in the past century. I examine the factors that created the boom, what caused the boom to turn to a bust, and the effect of leverage on the events that followed. The case studies illustrate the variety of economic and institutional factors that contribute to nonfinancial business credit booms as well as the intensity of the fallout when booms turned to busts. Though the factors that led to the booms varied, one commonality is that the turning point between boom and bust period in ...
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Liquidity Transformation Risks in U.S. Bank Loan and High-Yield Mutual Funds
In this note, we examine the liquidity profiles of a sample of bank loan and high-yield open-end mutual funds. Among other things, we find that the ten largest bank loan mutual funds have increased their holdings of the hardest-to-value, generally most illiquid assets over the past decade.
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Swing Pricing Calibration: A Simple Thought Exercise Using ETF Pricing Dynamics to Infer Swing Factors for Mutual Funds
This note uses pricing dynamics for exchange-traded funds that invest primarily in short-term debt to provide rough estimates of a range of swing-factor-proxies for mutual funds that invest in similar assets. These proxies could be useful for benchmarking stress-period swing factors in which mutual funds that invest substantially in short-term debt experience large net redemptions.
Report
Money Market Mutual Funds: Runs, Emergency Liquidity Facilities, and Potential Reforms
This note describes past runs on non-government money market mutual funds and official sector actions that were taken to stem the runs. In addition, it highlights other cash management vehicles that may have vulnerabilities similar to those of non-government MMMFs. Finally, it proposes that converting all non-government MMMFs into government MMMFs could substantially reduce the likelihood of future official sector support for MMMFs.
Report
Accounting for Debt Securities in the Age of Silicon Valley Bank
This note examines the mixed measurement accounting approach for debt securities under U.S. Generally Accepted Accounting Principles. It considers potential options for addressing the concerns with the accounting for held-to-maturity debt securities following the failure of Silicon Valley Bank.
Report
Benefits and Challenges of the “CECL” Approach
This note provides an overview of the Current Expected Credit Loss ("CECL") accounting approach for credit losses. It also discusses the potential benefits and challenges of the CECL approach to financial institutions and users of their financial statements.