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Tag Archives: Liquidity

Bank Capital, Loan Liquidity, and Credit Standards since the Global Financial Crisis

Sarah Ngo Hamerling, Donald P. Morgan, and John Sporn Did the 2007-09 financial crisis or the regulatory reforms that followed alter how banks change their underwriting standards over the course of the business cycle? We provide some simple, “narrative” evidence on that question by studying the reasons banks cite when they report a change in commercial credit standards in the Federal Reserve’s Senior Loan Officer Opinion Survey. We find that the economic outlook, risk...

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Expanding the Toolkit: Facilities Established to Respond to the COVID-19 Pandemic

Anna Kovner and Antoine Martin First of three posts The Federal Reserve’s response to the coronavirus pandemic has been unprecedented in its size and scope. In a matter of months, the Fed has, among other things, cut the federal funds rate to the zero lower bound, purchased a large amount of Treasury securities and agency mortgage‑backed securities (MBS) and, together with the U.S. Treasury, introduced several lending facilities. Some of these facilities are very similar to...

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Explaining the Puzzling Behavior of Short-Term Money Market Rates

Antoine Martin, James J. McAndrews, Ali Palida, and David Skeie Since 2008, the Federal Reserve has dramatically increased the supply of bank reserves, effectively adopting a floor system for monetary policy implementation. Since then, the behavior of short-term money market rates has been at times puzzling. In particular, short-term rates have been surprisingly firm in recent months, despite the large increase in reserves by the Fed as a part of its response to the coronavirus pandemic....

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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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Outflows from Bank-Loan Funds during COVID-19

Nicola Cetorelli, Gabriele La Spada, and João Santos The COVID-19 pandemic has put significant pressure on debt markets, especially those populated by riskier borrowers. The leveraged loan market, in particular, came under remarkable stress during the month of March. Bank-loan mutual funds, among the main holders of leveraged loans, suffered massive outflows that were reminiscent of the outflows they experienced during the 2008 crisis. In this post, we show that the flow sensitivity of...

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Combating COVID-19: How Should Banking Supervisors Respond?

By Tobias Adrian  and Ceyla Pazarbasioglu عربي, 中文,  Español, Français,Русский  The massive macro-financial shock caused by the pandemic continues to ravage the global economy and has put both banks and borrowers under severe strain. Supervisors find themselves confronted with unprecedented challenges which call for decisive action to ensure that banking systems support the real economy while preserving financial stability. This blog introduces nine joint IMF-World Bank recommendations to...

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Courage under Fire: Policy Responses in Emerging Market and Developing Economies to the COVID-19 Pandemic

Martin Mühleisen, Vladimir Klyuev, Sarah Sanya The coronavirus crisis is a crisis like no other, and for emerging market and developing economies (EMDE), it has triggered a policy response like no other, both in scope and magnitude. Despite their diversity, and in some cases, strained resources, this large group of countries—consisting of emerging markets and low-income countries—have bolstered the provision of health services and extended unprecedented support to households, firms, and...

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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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The Money Market Mutual Fund Liquidity Facility

Marco Cipriani, Gabriele La Spada, Reed Orchinik, and Aaron Plesset 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. Over the first three weeks of March, as uncertainty surrounding the COVID-19 pandemic increased, prime and municipal (muni) money market funds (MMFs) faced large redemption pressures. Similarly to past episodes of industry dislocation,...

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