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Tag Archives: Federal Reserve

Understanding Cyber Risk: Lessons from a Recent Fed Workshop

Gara Afonso, Filippo Curti, Ping McLemore, and Atanas Mihov Cyber risk poses a major threat to financial stability, yet financial institutions still lack consensus on the definition of and terminology around cyber risk and have no common framework for confronting these hazards. This impedes efforts to measure and manage such risk, diminishing institutions’ individual and collective readiness to handle system-level cyber threats. In this blog post, we describe the proceedings of a...

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Selected Deposits and the OBFR

Alyssa Cambron, Marco Cipriani, Joshua Jones, Romen Mookerjee, Scott Sherman, Brett Solimine, and Timothy Wessel The Federal Reserve Bank of New York recently decided to revise the composition of the Overnight Bank Funding Rate (OBFR), a reference rate measuring the cost banks face to borrow overnight in unsecured U.S. dollar-denominated money markets. Specifically, in addition to the federal funds and Eurodollar transactions currently comprising the...

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Global Trends in Interest Rates

Marco Del Negro, Domenico Giannone, Marc P. Giannoni, Andrea Tambalotti, Brandyn Bok, and Eric Qian Long-term government bond yields are at their lowest levels of the past 150 years in advanced economies. In this blog post, we argue that this low-interest-rate environment reflects secular global forces that have lowered real interest rates by about two percentage points over the past forty years. The magnitude of this decline has been nearly the same in all advanced...

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Stressed Outflows and the Supply of Central Bank Reserves

Ryan Bush, Adam Kirk, Antoine Martin, Phil Weed, and Patricia Zobel Since the financial crisis, banking regulators around the world have been intensely aware of liquidity risk and, in part as a response, have introduced the Basel III liquidity regulation. Today, the world’s largest banks hold substantial liquidity buffers comprising both securities and central bank reserves, to satisfy internal liquidity stress tests and minimum quantitative regulatory requirements. The...

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Building Defenses Against the Next Economic Downturn

By David Lipton عربي, Français,  日本語, Русский The global economy faces a number of complex challenges from technological change and globalization, and the lingering effects of the 2008-9 financial crisis. At the same time, we are witnessing lower levels of trust in the core institutions that have helped to deliver tremendous growth and prosperity over the past 40 years. These developments threaten to fragment the international order that has governed the global economy. History suggests...

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Did Banks Subject to LCR Reduce Liquidity Creation?

Daniel Roberts, Asani Sarkar, and Or Shachar Banks traditionally provide loans that are funded mostly by deposits and thereby create liquidity, which benefits the economy. However, since the loans are typically long-term and illiquid, whereas the deposits are short-term and liquid, this creation of liquidity entails risk for the bank because of the possibility that depositors may “run” (that is, withdraw their deposits on short notice). To mitigate this risk, regulators...

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“The Narrow Bank”

 A strange new bank called TNB, or The Narrow Bank, recently applied to get a clearing account at the Federal Reserve Bank of New York, only to be refused. Funny enough, TNB is run by the New York Fed's former director of research James McAndrews, who left in 2016 in order to get the bank up and running. McAndrews and TNB are now suing the New York Fed.There's a backstory to all of this kerfuffle. While still employed by the New York Fed, McAndrews coauthored a paper in 2015 entitled...

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How Do the Fed’s MBS Holdings Affect the Economy?

Antoine Martin and Sam Schulhofer-Wohl In our previous post, we discussed the meaning of the term “credit allocation” and how it relates to the Federal Reserve’s holdings of agency mortgage-backed securities (MBS). We concluded that the Fed’s MBS holdings do not pose significant credit risk but that the Fed does influence the relative market price of credit when it purchases agency MBS, and this indirectly influences decisions by investors. Today, we take the next step and discuss...

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How Do the Fed’s MBS Purchases Affect Credit Allocation?

Antoine Martin and Sam Schulhofer-Wohl It is sometimes said that the Federal Reserve should not engage in “credit allocation.” But what does credit allocation actually mean? And how do current Fed policies affect the allocation of credit? In this post, we describe two separate ideas often associated with credit allocation. The first idea is that the Fed should not take credit risk, which taxpayers would ultimately have to bear. The second idea is that the Fed’s actions should not...

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The Global Expansion: Still Strong but Less Even, More Fragile, Under Threat

By Maurice Obstfeld July 16, 2018 Versions in عربي, Baˈhasa indoneˈsia, 中文, Español, Français, 日本語, Português, Русский  The escalation of trade tensions is the greatest near-term threat to global growth (photo: wildpixel/Getty Images by iStock) Amid rising tensions over international trade, the broad global expansion that began roughly two years ago has plateaued and become less balanced. In our latest World Economic Outlook Update, we continue to project global growth rates of just...

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