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Tag Archives: Liquidity

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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Assessing the Price Impact of Treasury Market Workups

Michael Fleming and Giang Nguyen The price impact of a trade derives largely from its information content. The “workup” mechanism, a trading protocol used in the U.S. Treasury securities market, is designed to mitigate the instantaneous price impact of a trade by allowing market participants to trade additional quantities of a security after a buyer and seller first agree on its price. Nevertheless, workup trades are not necessarily free of information. In this post, we assess 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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What Can We Learn from the Timing of Interbank Payments?

Adam Copeland, Linsey Molloy, and Anya Tarascina From 2008 to 2014 the Federal Reserve vastly increased the size of its balance sheet, mainly through its large-scale asset purchase programs (LSAPs). The resulting abundance of reserves affected the financial system in a number of ways, including by changing the intraday timing of interbank payments. In this post we show that (1) there appears to be a nonlinear relationship between the amount of reserves in the system and the timing...

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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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Just Released: Introducing the SCE Household Spending Survey

Gizem Kosar, Kyle Smith, and Wilbert van der Klaauw Today we are releasing new data on individuals’ experiences and expectations regarding household spending. These data have been collected every four months since December 2014 as part of our Survey of Consumer Expectations (SCE). The goal of this blog post is to introduce the SCE Household Spending Survey and highlight some of its features. While the SCE Household Spending Survey shares design features with the main...

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Creditor Recovery in Lehman’s Bankruptcy

Erin Denison, Michael Fleming, and Asani Sarkar Expectations of creditor recovery were low when the Lehman Brothers bankruptcy process started. On the day the firm filed for bankruptcy in September 2008, the average price of Lehman’s senior bonds implied a recovery rate of about 30 percent for senior creditors. A month later the bond price was implying a recovery rate of 9 percent, consistent with results from Lehman’s CDS auction. Two and a half years later, Lehman’s estate...

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Price Impact of Trades and Limit Orders in the U.S. Treasury Securities Market

Michael Fleming, Bruce Mizrach, and Giang Nguyen It’s long been known that asset prices respond not only to public information, such as macroeconomic announcements, but also to private information revealed through trading. More recently, with the growth of high-frequency trading, academics have argued that limit orders—orders to buy or sell a security at a specific price or better—also contain information. In this post, we examine the information content of trades and limit orders in...

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Chart of the Week: Financial Reform Report Card

By Tobias Adrian, Dirk Jan Grolleman, and Anastasiia Morozova October 29, 2018 Countries have improved banking sector regulation considerably in the past decade, but areas of weakness remain (Steve Gottlieb/Newscom) The many 10th anniversary retrospectives of the global financial crisis mostly agree: the financial system is safer today than it was when US investment bank Lehman Brothers collapsed in 2008. In some respects, the IMF’s recent Global Financial Stability Report supports...

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