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Tag Archives: Federal Reserve

Monetary Policy Transmission and the Size of the Money Market Fund Industry

Marco Cipriani, Jeff Gortmaker, and Gabriele La Spada In a recent post, we documented the transmission of monetary policy through money market funds (MMFs). In this post, we complement that analysis by comparing the transmission of monetary policy via MMFs to the transmission via bank deposits and studying the impact of the differential pass-through on the size of the MMF industry. To this purpose, we focus on rates on certificates of deposit (CDs) offered to banks’ retail customers...

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Lower for Longer: Rising Vulnerabilities May Put Growth at Risk

By Tobias Adrian and Fabio Natalucci عربي, 中文, Español, Français, Português, 日本語, Русский The pace of global economic activity remains weak, and financial markets expect rates to stay lower for longer than anticipated in early 2019. Financial conditions have eased even more, helping contain downside risks and support the global economy in the near term. But loose financial conditions come at a cost: they encourage investors to take more chances in a quest for higher returns, so risks to...

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The Transmission of Monetary Policy and the Sophistication of Money Market Fund Investors

Marco Cipriani, Jeff Gortmaker, and Gabriele La Spada In December 2015, the Federal Reserve tightened monetary policy for the first time in almost ten years and, over the following three years, it raised interest rates eight more times, increasing the target range for the federal funds rate from 0-25 basis points (bps) to 225-250 bps. To what extent are changes in the fed funds rate transmitted to cash investors, and are there differences in the pass-through between retail and...

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How Do Large Banks Manage Their Cash?

Jeffrey Levine and Asani Sarkar Second of two posts As the aggregate supply of reserves shrinks and large banks implement liquidity regulations, they may follow a variety of liquidity management strategies depending on their business models and the interest rate differences between alternative liquid instruments. For example, the banks may continue to hold large amounts of excess reserves or shift to Treasury or agency securities or shrink their balance sheets. In this post, we...

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Large Bank Cash Balances and Liquidity Regulations

Jeffrey Levine and Asani Sarkar Update (9 a.m.): An earlier version of this post transposed line labels in the first figure. The error has been corrected. First of two posts The Federal Open Market Committee (FOMC) has recently communicated its aim to continue implementing monetary policy in a regime that maintains an ample supply of reserves, though with a significantly lower level of reserves than has prevailed in recent years. The liquidity needs of the largest U.S....

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From Policy Rates to Market Rates—Untangling the U.S. Dollar Funding Market

Gara Afonso, Fabiola Ravazzolo, and Alessandro Zori How do changes in the rate that the Federal Reserve pays on reserves held by depository institutions affect rates in money markets in which the Fed does not participate? Through which channels do changes in the so-called administered rates reach rates in onshore and offshore U.S. dollar money markets? In this post, we answer these questions with the help of an interactive map that guides us through the web of interconnected...

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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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