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Tag Archives: Federal Reserve

A New Reserves Regime? COVID-19 and the Federal Reserve Balance Sheet

Gara Afonso, Marco Cipriani, Gabriele La Spada, and Will Riordan Aggregate reserves declined from nearly $3 trillion in August 2014 to $1.4 trillion in mid-September 2019, as the Federal Reserve normalized its balance sheet. This decline came to a halt in September 2019 when the Federal Reserve responded to turmoil in short-term money markets, with reserves fluctuating around $1.6 trillion in the early months of 2020. Then, in response to the COVID-19 pandemic, the Federal Reserve...

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Leverage Ratio Arbitrage All Over Again

Donald P. Morgan, Dong Beom Choi, and Michael R. Holcomb Leverage limits as a form of capital regulation have a well-known, potential bug: If banks can’t lever returns as desired, they can boost returns on equity by shifting toward riskier, higher yielding assets. That reach for yield is the leverage rule “arbitrage.” But would banks do that? In a previous post, we discussed evidence from our working paper that banks did do just that in response to the new leverage rule that took effect...

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Municipal Debt Markets and the COVID-19 Pandemic

Marco Cipriani, Andrew Haughwout, Ben Hyman, Anna Kovner, Gabriele La Spada, Matthew Lieber, and Shawn Nee In March, with the outbreak of the COVID-19 pandemic in the United States, the market for municipal securities was severely stressed: mutual fund redemptions sparked unprecedented selling of municipal securities, yields increased sharply, and issuance dried up. In this post, we describe the evolution of municipal bond market conditions since the onset of the COVID-19 crisis. We show...

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Is fiat money to blame for the Iraq war, police brutality, and the war on drugs?

I often encounter memes claiming that fiat money is to blame for all sorts of government evils. Here is one example from Kraken spokesperson & bitcoin meme factory Pierre Rochard: The military-industrial complex that deliberately creates wars is financed by inflationary State fiat currencies. — Pierre Rochard (@pierre_rochard) January 8, 2020 The rough idea behind this family of memes is that the Federal Reserve, the world's largest producer of "fiat" money (i.e. irredeemable...

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Banks are slow to increase rates on savings accounts, but quick to reduce them

Chase Sunset & Vine, 2012. Painting by Alex Schaefer Banks don't like to share higher interest rates with their customers. Case in point: let's take a look at what happened as the Federal Reserve, the U.S.'s central bank, went through a long period of hiking interest rates from 2015 to 2019.The Federal Reserve's first rate increase (from 0.25% to 0.5%) was in December 2015. It increased rates once more in 2016 and three times in 2017. But the interest rate on the average U.S. savings...

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How Fed Swap Lines Supported the U.S. Corporate Credit Market amid COVID-19 Strains

Nicola Cetorelli, Linda S. Goldberg, and Fabiola Ravazzolo The onset of the COVID-19 shock in March 2020 brought large changes to the balance sheets of the U.S. branches of foreign banking organizations (FBOs). Most of these branches saw sizable usage of committed credit lines by U.S.-based clients, resulting in increased funding needs. In this post, we show that branches of FBOs from countries whose central banks used standing swap lines with the Federal Reserve (“standing swap central...

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The Paycheck Protection Program Liquidity Facility (PPPLF)

Haoyang Liu and Desi Volker This post is part of an ongoing series on the credit and liquidity facilities established by the Federal Reserve to support households and businesses during the COVID-19 outbreak. On April 9, 2020, the Federal Reserve announced that it would take additional actions to provide up to $2.3 trillion in loans to support the economy in response to the COVID-19 crisis. Among the measures taken was the establishment of a new facility intended to...

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The Primary Dealer Credit Facility

Antoine Martin and Susan McLaughlin This post is part of an ongoing series on the credit and liquidity facilities established by the Federal Reserve to support households and businesses during the COVID-19 outbreak. On March 17, 2020, the Federal Reserve announced that it would re-establish the Primary Dealer Credit Facility (PDCF) to allow primary dealers to support smooth market functioning and facilitate the availability of credit to businesses and households. The PDCF started...

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The Commercial Paper Funding Facility

Nina Boyarchenko, Richard Crump, and Anna Kovner This post is part of an ongoing series on the credit and liquidity facilities established by the Federal Reserve to support households and businesses during the COVID-19 outbreak. In mid-March, the Federal Reserve announced a slew of credit and liquidity facilities aimed at supporting credit provision to U.S. households and businesses. Among the initiatives is the Commercial Paper Funding Facility (CPFF) which aims to support...

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Why Fedcoin

Six years ago I wrote a blog post about Fedcoin. Fedcoin is a type of central bank digital currency, or CBDC. (I called it Fedcoin at the time, but it could be any central bank that issues it, not just the Federal Reserve.)So why Fedcoin?The rough idea was that it might make sense for the Federal Reserve to create a digital version of the banknotes it issues. To do so it would use a blockchain, much like the blockchains that power Ethereum or Bitcoin. Anonymous users all over the world...

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