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Tag Archives: Liquidity

Did Dealers Fail to Make Markets during the Pandemic?

Jiakai Chen, Haoyang Liu, David Rubio, Asani Sarkar, and Zhaogang Song In March 2020, as the COVID-19 pandemic disrupted a range of financial markets, the ability of dealers to maintain liquid conditions in these markets was questioned. Reflecting these concerns, authorities took numerous steps, including providing regulatory relief to dealers. In this post, we examine liquidity provision by dealers in several financial markets during the pandemic: how much was provided, possible...

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Staying Afloat: New Measures to Support European Businesses

By Alfred Kammer and Laura Papi Español, Français  Much of Europe rang in the start of 2021 with new lockdowns and weak economic activity. This same period saw the roll out of effective vaccines. While the end of the pandemic will remain a race between the virus and vaccines, there is now light at the end of the tunnel. At the same time, government programs aimed at supporting lives and livelihoods have been highly successful. Amid the pandemic’s enormous human toll, these measures provided...

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Measuring the Forest through the Trees: The Corporate Bond Market Distress Index

Nina Boyarchenko, Richard Crump, Anna Kovner, and Or Shachar With more than $10.4 trillion outstanding as of Q3:2020, the U.S. corporate bond market is a significant source of funding for most large U.S. corporations. While prior literature offers a variety of measures to capture different aspects of corporate bond market functioning, there is little consensus on how to use those measures to identify periods of distress in the market as a whole. In this post, we describe the...

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How Competitive are U.S. Treasury Repo Markets?

Adam Copeland, R. Jay Kahn, Antoine Martin, Matthew McCormick, William Riordan, Kevin Clark, and Tim Wessel The Treasury repo market is at the center of the U.S. financial system, serving as a source of secured funding as well as providing liquidity for Treasuries in the secondary market. Recently, results published by the Bank for International Settlements (BIS) raised concerns that the repo market may be dominated by as few as four banks. In this post, we show that the secured funding...

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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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