Speech At the Association of Neighborhood and Housing Development Eighth Annual Community Development Conference Build.Community.Power, New York, New York
Speech At "Ring-Fencing the Global Banking System: The Shift towards Financial Regulatory Protectionism" Symposium sponsored by Harvard Law School Program on International Financial Systems, Harvard Law School, Cambridge, Massachusetts
Speech At the Decoding Digital Currency ConferenceSponsored by the Federal Reserve Bank of San Francisco, San Francisco, California
Speech At "Challenges for Monetary Policy and the GFSN in an Evolving Global Economy" Eighth High-Level Conference on the International Monetary System sponsored by the International Monetary Fund and Swiss National Bank, Zurich, Switzerland
Speech At "Currencies, Capital, and Central Bank Balances: A Policy Conference," a Hoover Institution Monetary Policy Conference, Stanford University, Stanford, California
Speech At the Federal Reserve Bank of Richmond Baltimore Community Development Gathering, Baltimore, Maryland
Speech At The Economic Club of Chicago, Chicago, Illinois
Speech At the Center for Global Economy and Business, Stern School of Business, New York University, New York, New York
Speech At the HOPE Global Forums Annual Meeting, Atlanta, Georgia
Speech At the Money Marketeers of New York University, New York, New York
WASHINGTON – The FINRA Investor Education Foundation (FINRA Foundation) today announced the recipients of two higher-education awards created to recognize outstanding analysis by researchers-in-training using data from the FINRA Foundation’s National Financial Capability Study (NFCS).
WASHINGTON – FINRA’s Board of Governors held its second meeting of 2018 on May 9-10 in New York, where it approved two new rule proposals and previewed a draft of the organization’s Annual Financial Report, which FINRA issues each year to provide transparency into its finances. The 2017 report will be published in June.
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Industrial and Commercial Bank of China Financial Services LLC (ICBCFS) $5.3 million for systemic anti-money laundering (AML) compliance failures, including its failure to have a reasonable AML program in place to monitor and detect suspicious transactions, as well as other violations, including financial, recordkeeping, and operational violations.
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today it has fined Fifth Third Securities, Inc., $4 million and required the firm to pay approximately $2 million in restitution to customers for failing to appropriately consider and accurately describe the costs and benefits of variable annuity (VA) exchanges, and for recommending exchanges without a reasonable basis to believe the exchanges were suitable. This is the second significant FINRA enforcement action against Fifth Third involving the firm’s sale of variable annuities.
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) today released a comprehensive progress report summarizing the significant operational and regulatory changes FINRA has made in the first year of its ongoing FINRA360 organizational review.
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) has named Timothy C. Scheve, President and Chief Executive Officer of Janney Montgomery Scott LLC, as a new Large Firm Governor on its Board of Governors. Scheve was appointed to complete the term of former Governor John W. Thiel, who left the Board earlier this year.
WASHINGTON – Instinet, LLC has been censured and fined a total of $1.575 million for violations of various provisions of Rule 15c3-5 of the Securities Exchange Act of 1934 (known as the Market Access Rule) and related exchange supervisory rules. The action was taken by the Financial Industry Regulatory Authority (FINRA), along with BOX Options Exchange LLC (BOX); the Cboe BZX Exchange, Inc.; Investors Exchange LLC (IEX); The NASDAQ Stock Market LLC; the New York Stock Exchange; and certain of their affiliated Exchanges (collectively, “Exchanges”).
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has named Bari Havlik as Executive Vice President for Member Supervision. In that capacity, Havlik will be responsible principally for leading FINRA’s Member Regulation program, which includes surveillance and examination programs for member firms. She will replace Susan Axelrod, who is leaving FINRA after 28 years of service, and will report directly to FINRA CEO Robert Cook. Havlik will start on April 30.
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) today issued an Investor Alert to help consumers consider the risks of sharing personal financial account information and other sensitive information with data aggregators.
WASHINGTON — Women consistently lag behind men on financial and investor literacy scores across generations of boomers, gen Xers and millennials, according to a multi-year study by the FINRA Investor Education Foundation.
In 2015, the gap in financial literacy between boomer men and women was 19 percent, and for gen Xers 18 percent. But for millennials, it was only 10 percent.
The Securities and Exchange Commission today announced fraud charges against three former Constellation Healthcare Technologies Inc. executives who falsified financial and other information they provided to a private firm in the course of negotiating the private firm’s acquisition of a majority stake in Constellation. Houston-based Constellation filed for bankruptcy in March, a little more than a year after the January 2017 acquisition.
According to the SEC’s complaint, the executives convinced a private firm to acquire a majority of Constellation’s equity and provided fake information, including financial statements for three fictitious subsidiaries supposedly acquired for more than $62 million. The complaint alleges that the former executives funded the sham acquisitions with stock sales in London and then diverted the proceeds to themselves. The complaint charges former Constellation chief executive Parmjit (Paul) Parmar, former chief financial officer Sotirios (Sam) Zaharis, and former company secretary Ravi Chivukula. In September 2017, amid concerns about Constellation’s financial condition, Parmar resigned and Zaharis and Chivukula were put on administrative leave.
“Using phony balance sheets, doctored bank statements, and other fabrications to conceal the theft of investor monies, which we allege occurred in this case, will not go undetected or unpunished,” said Marc P. Berger, Director of the SEC’s New York Regional Office.
In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against Parmar, Zaharis, and Chivukula.
The SEC’s complaint, filed in U.S. District Court in New Jersey, charges Parmar, Zaharis, and Chivukula with violating the antifraud provisions of the federal securities laws. The SEC is seeking permanent injunctions, return of allegedly ill-gotten gains plus interest, civil penalties, and officer-and-director bars against Parmar, Zaharis, and Chivukula.
The SEC’s investigation, which is continuing, has been conducted by John O. Enright and Sheldon L. Pollock of the New York Regional Office and supervised by Lara S. Mehraban. The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of New Jersey and the FBI.
The Securities and Exchange Commission today charged the owner of a Manhattan-based alternative investment firm with misappropriating close to $6 million in investor funds earmarked to finance the construction of an international airport in Belize.
The SEC’s complaint alleges that between 2014 and 2017, Brent Borland sold more than $21 million of promissory notes to dozens of investors, promising that the funds would be used as bridge financing for development of an international airport in Placencia, Belize, and that the investments would be protected by pledges of real estate as collateral. Borland marketed and sold the notes through two companies, Borland Capital Group LLC, which purports to be active in “alternative investment,” and Belize Infrastructure Fund I, LLC, which purports to be in the business of construction finance.
The complaint alleges that Borland used millions of dollars of investor funds for personal expenses and unrelated business expenses, including mortgage and property tax payments on his family’s Florida mansion, multiple luxury automobiles, private school tuition for his children, $36,000 for his family’s beach club membership, and almost $2.7 million to pay off credit cards. Borland also allegedly deceived investors by pledging the same collateral to multiple investors.
“Investors should be able to count on the fact that their invested funds are used as promised,” said Robert J. Burson, Associate Regional Director of the SEC's Chicago Regional Office. “We obtained an asset freeze and immediate injunctive relief in this case to protect victims from alleged false promises.”
The SEC's complaint charges Borland, Borland Capital Group and Belize Infrastructure Fund with violating the antifraud provisions of the federal securities laws. The SEC seeks asset freezes, an accounting of investor assets, disgorgement, and civil penalties. The complaint also names as relief defendants Borland’s wife, Alana LaTorra Borland, and a corporation controlled by Borland and his wife, Canyon Acquisitions, LLC. The SEC seeks to recover investor proceeds that Borland transferred to the relief defendants.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Borland who was arrested earlier in the day.
The SEC's investigation, which is continuing, was conducted by Andrew O’Brien and Donald Ryba and supervised by C.J. Kerstetter. The SEC's litigation will be led by Benjamin Hanauer and Timothy Leiman.
If you’ve ever been tempted to buy into a hot investment opportunity linked with luxury travel, the Securities and Exchange Commission has a deal for you.
Check out the SEC’s Office of Investor Education and Advocacy’s mock initial coin offering (ICO) website that touts an all too good to be true investment opportunity. But please don’t expect the SEC to fly you anywhere exotic—because the offer isn’t real.
The SEC set up a website, HoweyCoins.com, that mimics a bogus coin offering to educate investors about what to look for before they invest in a scam. Anyone who clicks on “Buy Coins Now” will be led instead to investor education tools and tips from the SEC and other financial regulators.
“The rapid growth of the ‘ICO’ market, and its widespread promotion as a new investment opportunity, has provided fertile ground for bad actors to take advantage of our Main Street investors,”said SEC Chairman Jay Clayton. “We embrace new technologies, but we also want investors to see what fraud looks like, so we built this educational site with many of the classic warning signs of fraud. Distributed ledger technology can add efficiency to the capital raising process, but promoters and issuers need to make sure they follow the securities laws. I encourage investors to do their diligence and ask questions.” [1]
The website features several of the enticements that are common to fraudulent offerings, including a white paper with a complex yet vague explanation of the investment opportunity, promises of guaranteed returns, and a countdown clock that shows time is quickly running out on the deal of a lifetime.
“Fraudsters can quickly build an attractive website and load it up with convoluted jargon to lure investors into phony deals,” said Owen Donley, Chief Counsel of the SEC’s Office of Investor Education and Advocacy, who doubles as “Josh Hinze” on the HoweyCoins website. “But fraudulent sites also often have red flags that can be dead giveaways if you know what to look for.”
The website’s name, HoweyCoins, is a bit of an Easter egg—a tongue-in-cheek reference to the Howey test that’s used to determine whether a transaction is an investment contract.
In a landmark 1946 U.S. Supreme Court decision, SEC v. W.J. Howey Co., the Court held that a transaction is an investment contract, or security, if “a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”
The SEC was able to build the HoweyCoins website in-house in very little time, which demonstrates just how easy it is for someone to create a scam opportunity.
Remember, a free and simple way to protect your money is to research investments and the people who sell them. You can do all that and more on the SEC’s investor education website, Investor.gov.
Before you invest, Investor.gov.
[1]For example, SEC Chairman Jay Clayton’s Statement on Cryptocurrencies and Initial Coin Offerings includes questions investors and other market participants should consider asking. https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11
The Securities and Exchange Commission today announced settled charges against broker-dealers Chardan Capital Markets LLC and Industrial and Commercial Bank of China Financial Services LLC (ICBCFS) for failing to report suspicious sales of billions of penny stock shares.
Broker-dealers are required to file Suspicious Activity Reports (SARs) for transactions suspected to involve fraud or with no apparent lawful purpose. According to the SEC, from October 2013 to June 2014, Chardan, an introducing broker, liquidated more than 12.5 billion penny stock shares for seven of its customers and ICBCFS cleared the transactions. Chardan failed to file any SARs even though the transactions raised red flags, including similar trading patterns and sales in issuers who lacked revenues and products. The SEC found that ICBCFS similarly failed to file any SARs for the transactions despite ultimately prohibiting trading in penny stocks by some of the seven customers.
“As gatekeepers to the securities markets, brokerage firms, including clearing firms, must take their anti-money laundering obligations seriously,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “The failure to file SARs in the face of numerous red flags is unacceptable.”
The SEC’s orders found that Chardan and ICBCFS violated the Exchange Act and an SEC financial recordkeeping and reporting rule and that Chardan’s anti-money laundering (AML) officer, Jerard Basmagy, aided and abetted and caused the firm’s violations. The SEC also found that ICBCFS failed to produce documents promptly to SEC staff. Without admitting or denying the SEC’s findings, the parties agreed to settlements requiring Chardan to pay a $1 million penalty, ICBCFS to pay $860,000, and Basmagy to pay $15,000. Both firms consented to censures and, along with Basmagy, to cease and desist from similar violations in the future. Basmagy also agreed to industry and penny stock bars for a minimum of three years.
The SEC’s investigation was conducted in conjunction with a broader inquiry by FINRA into ICBCFS’s AML program and alleged financial, recordkeeping, and operational violations. FINRA today announced a related settled action against ICBCFS in which the firm agreed to pay a $5.3 million penalty and to retain an independent compliance consultant.
The SEC’s investigation was conducted by Debbie Chan, Lindsay S. Moilanen, James Burt IV, and Sheldon L. Pollock of the New York Regional Office with assistance from the Enforcement Division’s Bank Secrecy Act Review Group. It was supervised by Sanjay Wadhwa. The SEC’s examination that led to the enforcement referral in this matter was conducted by Theresa Gleason, Josephine LaFata, Stephanie Morena, and Roseanne Smith, and was supervised by Robert A. Sollazzo of the New York Regional Office. The SEC appreciates the assistance of FINRA.
The Securities and Exchange Commission today announced that James Reese has been named the Chief Risk and Strategy Officer of the agency’s Office of Compliance Inspections and Examinations (OCIE). Mr. Reese has served as Acting Chief since February 2017.
The Chief Risk and Strategy Officer leads the Office of Risk and Strategy (ORS), which was established in 2016 to consolidate OCIE’s risk assessment, market surveillance, large firm monitoring and quantitative analysis teams, and provide operational risk management and organizational strategy for the National Exam Program. ORS is responsible for supporting the NEP’s risk-based and data driven processes through the identification of risks and emerging issues in the financial markets, exam targeting and selection efforts, resource allocation, and investment in quantitative-based examination initiatives.
“Jim is a strong, talented leader with a depth of experience, background, and expertise that is a valuable asset to the Commission and to OCIE,” said Peter B. Driscoll, Director of the Office of Compliance Inspections and Examinations. “I’m excited Jim will serve as OCIE’s Chief Risk and Strategy Officer and lead our Office of Risk and Strategy.”
Mr. Reese added, “I am truly honored and excited to have been given the opportunity to serve as the Chief Risk and Strategy Officer for OCIE. It continues to be a great privilege to work alongside of the dedicated and talented examiners and senior staff in OCIE and across the agency.”
Mr. Reese joined the SEC in 1999 as an examiner in the Investment Adviser/Investment Company program area. He later served as a branch chief, senior staff accountant, and Assistant Director in OCIE’s Office of Risk Analysis and Surveillance. Mr. Reese has participated in more than 500 examinations and assisted on numerous rulemaking efforts, including Investment Company and Investment Adviser Reporting; Use of Derivatives by Funds; Dodd-Frank Act Amendments to the Investment Advisers Act; and Private Fund Systemic Risk Reporting. Mr. Reese was also part of the Commission’s Aberrational Performance Inquiry team, which was comprised of staff from across the agency.
Mr. Reese graduated from Virginia Wesleyan University, where he received a Bachelor of Arts in Accounting and Finance. He holds the Certified Fraud Examiner (CFE) designation and is a frequent speaker for the SEC’s Technical Assistance Programs with the Office of International Affairs.
The Securities and Exchange Commission today charged four individuals for their roles in a fraudulent scheme that generated nearly $34 million from unlawful stock sales and caused significant harm to retail investors.
According to the SEC’s complaint, the defendants manipulated the market for and illegally sold the stock of microcap issuer Biozoom Inc. As part of the alleged scheme, the defendants hid their ownership and sales of Biozoom shares by using offshore bank accounts, sham legal documents, a network of nominees, anonymizing techniques, and other deceptive practices. The defendants also allegedly directed a wide-ranging promotional campaign and employed sophisticated, manipulative trading techniques to artificially inflate Biozoom’s share price. The alleged scheme culminated in the defendants’ illegal sales of Biozoom, which netted them nearly $34 million in unlawful proceeds.
“Manipulative and deceptive conduct undermines the integrity of our markets,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement. “The charges announced today demonstrate our commitment to unraveling even the most sophisticated international schemes that exploit retail investors.”
The SEC’s complaint, which was filed in federal district court in the Southern District of New York, charges Francisco Abellan Villena, Guillermo Ciupiak, James B. Panther Jr., and attorney Faiyaz Dean with violating antifraud and registration provisions of the federal securities laws and seeks monetary and equitable relief. The SEC previously obtained a judgment against Abellan for his role in another market manipulation scheme. In separate actions, the SEC charged two registered representatives for their roles in the unregistered sales of Biozoom stock and a brokerage firm for supervisory and recordkeeping failures.
The SEC obtained a court order in 2013 freezing proceeds from the unlawful Biozoom sales. It subsequently obtained a default judgment and established a fair fund, which has returned more than $14 million to harmed investors. The SEC also previously charged a lawyer and officer of Biozoom’s predecessor entity.
The SEC’s continuing investigation is being conducted by Marc E. Johnson and Jennie B. Krasner with the assistance of the Enforcement Division’s Information Technology Forensics Group, and under the supervision of Deborah A. Tarasevich and Ms. Chion. The litigation is being conducted by Duane K. Thompson and Daniel Maher, and supervised by Cheryl Crumpton. The SEC appreciates the assistance of the Financial Industry Regulatory Authority, the British Columbia Securities Commission, the Comision Nacional del Mercado de Valores of Spain, the Cyprus Securities and Exchange Commission, the Hong Kong Securities and Futures Commission, the Ontario Securities Commission, and the Supertendencia del Mercado de Valores of Panama.
The Securities and Exchange Commission today announced that Caryn E. Kauffman has been named the agency's Chief Financial Officer (CFO). Ms. Kauffman has served as Acting CFO since February 2017. The CFO plays a key role in making sure SEC resources are effectively allocated to the activities that best accomplish the agency’s mission.
In her role as CFO, Ms. Kauffman is responsible for leading the agency’s Office of Financial Management, which handles the SEC’s financial reporting and accounting operations, coordinates the development of agency budgets and budget requests, and monitors the use of the dollars entrusted to the agency.
“I am very pleased to appoint Caryn as our Chief Financial Officer,” said SEC Chairman Jay Clayton. “She has demonstrated excellent leadership in improving financial controls, managing the SEC’s budget resources, and continuously improving our financial management operations, all of which remain key priority areas for the SEC.”
Ms. Kauffman added, “I am greatly honored to have the opportunity to serve in this new capacity alongside the talented and dedicated staff of the Office of Financial Management and across the agency. Under Chairman Clayton’s leadership, the SEC is deeply committed to strong financial management, and I'm proud to lead the agency's efforts in this area."
Ms. Kauffman previously served as Deputy Chief Financial Officer since 2013, where she led the agency's financial accounting and reporting, controls and accounting operations. She first joined the SEC in 2011, in the role of Chief Accounting Officer. Before joining the SEC, Ms. Kauffman spent twelve years in the audit practice of PricewaterhouseCoopers LLP.
Ms. Kauffman received her B.S. in Accounting from the University of Richmond and is licensed as a certified public accountant.
The Securities and Exchange Commission today announced that it has charged New York-based investment adviser Premium Point Investments LP with inflating the value of private funds it advised by hundreds of millions of dollars. The SEC also charged Premium Point’s CEO and chief investment officer Anilesh Ahuja as well as Amin Majidi, a former partner and portfolio manager at the firm, and former trader Jeremy Shor.
According to the SEC’s complaint, the scheme ran from at least September 2015 through March 2016 and relied on a secret deal where in exchange for sending trades to a broker-dealer, Premium Point received inflated broker quotes for mortgage-backed securities (MBS). In addition, the defendants allegedly used “imputed” mid-point valuations, which were applied in a manner that further inflated the value of securities. This practice allegedly boosted the value of many of Premium Point’s MBS holdings and further exaggerated returns. The complaint alleges that the defendants overstated the funds’ value in order to conceal poor fund performance and attract and retain investors.
“Investors rely on their investment advisers to fairly and accurately value securities, and that is especially true when the securities trade in opaque markets,” said Daniel Michael, Chief of the Enforcement Division’s Complex Financial Instruments Unit. “As we allege, Premium Point masked its true performance, which denied investors the opportunity to make informed investment decisions.”
The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, charges the defendants with fraud, with aiding and abetting fraud, or both. The SEC complaint seeks permanent injunctions, return of allegedly ill-gotten gains with interest, and civil penalties.
The U.S. Attorney’s Office for the Southern District of New York, which conducted a parallel investigation of this matter, today announced charges against Ahuja, Majidi, and Shor.
The SEC’s investigation, which is continuing, was conducted by H. Gregory Baker and Brian Fitzpatrick of the Asset Management Unit, Osman Nawaz of the Complex Financial Instruments Unit, and Preethi Krishnamurthy of the New York Regional Office under the supervision of Mark D. Salzberg of the Asset Management Unit. The litigation is being conducted by Ms. Krishnamurthy, Mr. Baker, and Mr. Nawaz. The SEC acknowledges the assistance and cooperation of the U.S. Attorney’s Office and the FBI in this matter.
Federal Reserve and Office of the Comptroller of the Currency extend comment period for proposed rule tailoring leverage ratio requirements
Federal Reserve announces results of offering of seven-day term deposits on May 17
Federal Reserve Board announces termination of enforcement action with Regions Bank
Federal Reserve Board announces termination of enforcement actions with Barclays Bank plc and Oklahoma Capital Bank
Federal Reserve to offer 7-day term deposits on May 17
Federal Reserve Board announces approval of application by Ameris Bancorp
Federal Reserve Board welcomes release of global strategy for reducing wholesale payments fraud
Federal Reserve Board announces approval of final amendments to its Regulation A
Federal Reserve Board announces approval of application by Independent Bank Group, Inc.
Federal Reserve issues FOMC statement
What is financial stability?
We contracted with an independent public accounting firm to audit the Bureau Civil Penalty Fund's compliance with the Improper Payments Information Act of 2002, as amended, for fiscal year 2017. We reviewed and monitored the work of the contractor . . .
"These convictions send a clear warning that bank executives who deliberately deceive regulators by submitting false and misleading information will be held accountable and brought to justice for their actions . . .
Lists of report recommendations we made to the Board and to the CFPB that have been open for more than 12 months as of March 31, 2018, are now available.
The Work Plan presents the audits and evaluations we are conducting to help the Board and the CFPB fulfill their respective missions.
The Board's public website provides a large and diverse audience with timely and accurate information about the mission and work of the Board. Per the requirements of the Federal Information Security Modernization Act of 2014, we evaluated the . . .
We contracted with an independent public accounting firm to audit the financial statements of the Board as of and for the years ended December 31, 2017 and 2016, and to audit the Board's internal control over financial reporting as of December . . .
The Board performs the accounting function for the Federal Financial Institutions Examination Council, and we contracted with an independent public accounting firm to audit the FFIEC's financial statements as of and for the years ended December 31 . . .
After more than 100 years in business, Arkansas-based Allied Bank failed in 2016, resulting in an estimated $6.9 million loss to the Deposit Insurance Fund. In accordance with the Dodd-Frank Act, we conducted an in-depth review of the bank's failure.
The Risk Assessment, Data Analysis, and Research (RADAR) Data Warehouse gives Federal Reserve System and Board staff access to mortgage and consumer data for supervision and research purposes. We evaluated the effectiveness of select . . .
CFPB travel cards were used for 62,228 transactions totaling some $12.7 million in fiscal year 2017. We analyzed the risks of illegal, improper, or erroneous purchases and payments.
A closed meeting of the Board of Governors of the Federal Reserve System will be held at 11:30 a.m. on February 26, 2018. Matter(s) considered: Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks.
William B. Peterman and Erick Sager | Public debt can be optimal in standard incomplete market models with infinitely lived agents, since the associated capital crowd-out induces a higher interest rate. The higher interest rate encourages individuals to save and, hence, better self-insure against idiosyncratic labor earnings risk. Even though individual savings behavior is a crucial determinant of the optimality of public debt, this class of economies abstracts from empirically observed life cycle savings patterns. Thus, this paper studies how incorporating a life cycle affects optimal public debt. We find that while the infinitely lived agent model's optimal policy is public debt equal to 24% of output, the life cycle model's optimal policy is public savings equal to 61% of output. Although public debt also encourages life cycle agents to hold more savings during their lifetimes, the act of accumulating this savings mitigates the potential welfare benefit. Moreover, public savings improves life cycle agents' welfare by encouraging a flatter allocation of consumption and leisure over their lifetimes. Accordingly, abstracting from the life cycle yields an optimal policy that reduces average welfare by more than 0.6% of expected lifetime consumption. Furthermore, ignoring the life cycle overstates the influence of wealth inequality on optimal policy, since optimal policy is far less sensitive to wealth inequality in the life cycle model than in the infinitely lived agent model. These results demonstrate that studying optimal debt policy in an infinitely lived agent model, which abstracts from the realism of a life cycle in order to render models more computationally tractable, is not without loss of generality.
Michael B. Gordy and Alexander J. McNeil | We study a class of backtests for forecast distributions in which the test statistic is a spectral transformation that weights exceedance events by a function of the modeled probability level. The choice of the kernel function makes explicit the user's priorities for model performance. The class of spectral backtests includes tests of unconditional coverage and tests of conditional coverage. We show how the class embeds a wide variety of backtests in the existing literature, and propose novel variants as well. In an empirical application, we backtest forecast distributions for the overnight P&L of ten bank trading portfolios. For some portfolios, test results depend materially on the choice of kernel.
You Suk Kim, Steven M. Laufer, Karen Pence, Richard Stanton, and Nancy Wallace | Nonbanks originated about half of all mortgages in 2016, and 75% of mortgages insured by the FHA or VA. Both shares are much higher than those observed at any point in the 2000s. We describe in this paper how nonbank mortgage companies are vulnerable to liquidity pressures in both their loan origination and servicing activities, and we document that this sector in the aggregate appears to have minimal resources to bring to bear in a stress scenario. We show how these exact same liquidity issues unfolded during the financial crisis, leading to the failure of many nonbank companies, requests for government assistance, and harm to consumers. The extremely high share of nonbank lenders in FHA and VA lending suggests that nonbank failures could be quite costly to the government, but this issue has received very little attention in the housing-reform debate.
Thiago R. T. Ferreira | Using U.S. data from 1926 to 2015, I show that financial skewness--a measure comparing cross-sectional upside and downside risks of the distribution of stock market returns of financial firms--is a powerful predictor of business cycle fluctuations. I then show that shocks to financial skewness are important drivers of business cycles, identifying these shocks using both vector autoregressions and a dynamic stochastic general equilibrium model. Financial skewness appears to reflect the exposure of financial firms to the economic performance of their borrowers.
Elliot Anenberg and Edward Kung | We estimate a neighborhood choice model using 2014 American Community Survey data to investigate the degree to which new housing supply can improve housing affordability. In the model, equilibrium rental rates are determined so that the number of households choosing each neighborhood is equal to the number of housing units in each neighborhood. We use the estimated model to simulate how rental rates would respond to an exogenous increase in the number of housing units in a neighborhood. We find that the rent elasticity is low, and thus marginal reductions in supply constraints alone are unlikely to meaningfully reduce rent burdens. The reason for this result appears to be that rental rates are more closely determined by the level of amenities in a neighborhood--as in a Rosen-Roback spatial equilibrium framework--than by the supply of housing.
Seth Pruitt and Nicholas Turner | What is the nature of labor income risk facing households? We answer this question using detailed administrative data on household earnings from the U.S. Internal Revenue Service. By analyzing total household labor earnings as well as each member's earnings, we offer several new findings. One, households face substantially less risk than males in isolation. Second, households face roughly half the countercyclical increase in risk that males face. Third, spousal labor income ameliorates household earnings risk through both extensive and intensive margins.
Andrew Y. Chen and Tom Zimmermann | We develop an estimator for publication bias and apply it to 156 hedge portfolios based on published cross-sectional return predictors. Publication bias adjusted returns are only 12% smaller than in-sample returns. The small bias comes from the dispersion of returns across predictors, which is too large to be accounted for by data-mined noise. Among predictors that can survive journal review, a low t-stat hurdle of 1.8 controls for multiple testing using statistics recommended by Harvey, Liu, and Zhu (2015). The estimated bias is too small to account for the deterioration in returns after publication, suggesting an important role for mispricing.
Garth Baughman and Francesca Carapella | This paper updates the standard workhorse model of banks' reserve management to include frictions inherent to money markets. We apply the model to study monetary policy implementation through an operating regime involving voluntary reserve targets (VRT). When reserves are abundant, as is the case following the unconventional policies adopted during the recent financial crisis, operating regimes based on reserve requirements may lead to a collapse in interbank trade. We show that, no matter the relative abundance of reserves, VRT encourage market activity and support the central bank's control over interest rates. In addition to this characterization, we consider (i) the impact of routine and non-routine liquidity injections by the central bank on market outcomes and (ii) a comparison with the implementation framework currently adopted by the Federal Reserve. Overall, we show that a VRT framework may provide several advantages over other frameworks.
Levent Altinoglu | I show that inter-firm lending plays an important role in business cycle fluctuations. I first build a tractable network model of the economy in which trade in intermediate goods is financed by supplier credit. In the model, a financial shock to one firm affects its ability to make payments to its suppliers. The credit linkages between firms propagate financial shocks, amplifying their aggregate effects by about 30 percent. To calibrate the model, I construct a proxy of inter-industry credit flows from firm- and industry-level data. I then estimate aggregate and idiosyncratic shocks to industries in the US and find that financial shocks are a prominent driver of cyclical fluctuations, accounting for two-thirds of the drop in industrial production during the Great Recession. Furthermore, idiosyncratic financial shocks to a few key industries can explain a considerable portion of these effects. In contrast, productivity shocks had a negligible impact during the recession.
Jeff Larrimore and David Splinter | Using newly available administrative data from the Internal Revenue Service, this paper studies the distribution of employer-sponsored health insurance premiums. Previous estimates, in contrast, were almost exclusively from household surveys. After correcting for coverage limitations of the IRS data, we find that average premiums for employer-sponsored plans are roughly $1000 higher in IRS records than in the Current Population Survey. The downward bias in the CPS is largely driven by underestimating of premiums among married workers and topcoding of high premiums.
Aaron Flaaen, Matthew D. Shapiro, and Isaac Sorkin | Prior literature has established that displaced workers suffer persistent earnings losses by following workers in administrative data after mass layoffs. This literature assumes that these are involuntary separations owing to economic distress. This paper examines this assumption by matching survey data on worker-supplied reasons for separations with administrative data. Workers exhibit substantially different earnings dynamics in mass layoffs depending on the reason for separation. Using a new methodology to account for the increased separation rates across all survey responses during a mass layoff, the paper finds earnings loss estimates that are surprisingly close to those using only administrative data.
Sriya Anbil and Zeynep Senyuz | We examine the interaction of regulatory reforms and changes in monetary policy in the U.S. repo market. Using a proprietary data set of repo transactions, we find that differences in regional implementation of Basel III capital reforms intensified European dealers' window-dressing by 80%. Money funds eligible to use the Fed's reverse repo (RRP) facility cut their private lending almost by half and instead lent to the Fed when European dealers withdraw, contributing to smooth implementation of Basel III. In a difference-in-differences setting, we show that ineligible funds lent 15% less to European dealers as they find their withdrawal for reporting purposes inconvenient. We find that intermediation through the RRP led to quantity and not pricing adjustments in the market, which is consistent with the RRP facility anchoring market rates.
Andrew C. Chang | I show that the probability that the Board of Governors of the Federal Reserve System staff's forecasts (the "Greenbooks") overpredicted quarterly real gross domestic product (GDP) growth depends on both the forecast horizon and also whether the forecasted quarter was above or below trend real GDP growth. For forecasted quarters that grew below trend, Greenbooks were much more likely to overpredict real GDP growth, with one-quarter ahead forecasts overpredicting real GDP growth more than 75% of the time, and this rate of overprediction was higher for further ahead forecasts. For forecasted quarters that grew above trend, Greenbooks were slightly more likely to underpredict real GDP growth, with one-quarter ahead forecasts underpredicting growth about 60% of the time. Unconditionally, on average, Greenbooks overpredicted real GDP growth.
Sarena Goodman, Adam Isen, and Constantine Yannelis | The federal government encourages human capital investment through lending and grant programs, but resources from these programs may also finance non-education activities for students whose liquidity is otherwise restricted. This paper explores this possibility, using administrative data for the universe of federal student loan borrowers linked to tax records. We examine the effects of a sharp discontinuity in program limits—generated by the timing of a student borrower's 24th birthday—on household formation early in the lifecycle. After demonstrating that this discontinuity induces a jump in federal support, we estimate an immediate and persistent increase in homeownership, with larger effects among those most financially constrained. In the first year, borrowers with higher limits also earn less but are more likely to save; however, there are no differences in subsequent years. Finally, effects on marriage and fertility lag homeownership. Altogether, the results appea r to be driven by liquidity rather than human capital or wealth effects.
Matteo Iacoviello and Gaston Navarro | This paper analyzes the spillovers of higher U.S. interest rates on economic activity in a large panel of 50 advanced and emerging economies. We allow the response of GDP in each country to vary according to its exchange rate regime, trade openness, and a vulnerability index that includes current account, foreign reserves, inflation, and external debt. We document large heterogeneity in the response of advanced and emerging economies to U.S. interest rate surprises. In response to a U.S. monetary tightening, GDP in foreign economies drops about as much as it does in the United States, with a larger decline in emerging economies than in advanced economies. In advanced economies, trade openness with the United States and the exchange rate regime account for a large portion of the contraction in activity. In emerging economies, the responses do not depend on the exchange rate regime or trade openness, but are larger when vulnerability is high.
Stephanie E. Curcuru, Michiel De Pooter, and George Eckerd | In this paper we estimate the magnitude of spillovers between bond markets in the U.S. and Germany following monetary policy communications by the FOMC and the ECB. The identification of policy-related co-movements following FOMC announcements, in particular, can be difficult because many foreign bond markets, including those in Germany, are closed at the time of the announcement. To address this issue we use intraday futures market data to estimate spillovers during a narrow and overlapping event window. We find that about half of the reaction in German domestic yields spills over to U.S. yields following ECB announcements, which is nearly identical to the spillover from U.S. yields to German Bund yields following FOMC announcements. This result contrasts with the conventional wisdom that FOMC announcements spill over to other countries but that there is not much effect in the other direction. We also find that spillover estimates are slightly higher in the post-crisis period, but that there is little difference in the spillover impact of conventional versus unconventional monetary policy. Our results based on futures prices differ noticeably from those using daily prices, which suggests that spillover estimates based on cash market data can be misleading.
Logan T. Lewis, Ryan Monarch, Michael Sposi, and Jing Zhang | Services, which are less traded than goods, rose from 50 percent of world expenditure in 1970 to 80 percent in 2015. Such structural change restrained "openness"--the ratio of world trade to world GDP--over this period. We quantify this with a general equilibrium trade model featuring non-homothetic preferences and input-output linkages. Openness would have been 70 percent in 2015, 23 percentage points higher than the data, if expenditure patterns were unchanged from 1970. Structural change is critical for estimating the dynamics of trade barriers and welfare gains from trade. Ongoing structural change implies declining openness, even absent rising protectionism.
John Ammer, Stijn Claessens, Alexandra Tabova, and Caleb Wroblewski | The risk-taking effects of low interest rates, now prevailing in many advanced countries, "search-for-yield," can be hard to analyze due to both a paucity of data and challenges in identification. Unique, security-level data on portfolio investment into the United States allow us to overcome both problems. Analyzing holdings of investors from 36 countries in close to 15,000 unique U.S. corporate bonds between 2003 and 2016, we show that declining home-country interest rates lead investors to shift their portfolios toward riskier U.S. corporate bonds, consistent with "search-for-yield". We estimate even stronger effects when home interest rates reach a low level, suggesting that risk-taking further accelerates.
Dario Caldara and Matteo Iacoviello | We present a monthly indicator of geopolitical risk based on a tally of newspaper articles covering geopolitical tensions, and examine its evolution and effects since 1985. The geopolitical risk (GPR) index spikes around the Gulf War, after 9/11, during the 2003 Iraq invasion, during the 2014 Russia-Ukraine crisis, and after the Paris terrorist attacks. High geopolitical risk leads to a decline in real activity, lower stock returns, and movements in capital flows away from emerging economies and towards advanced economies. When we decompose the index into threats and acts components, the adverse effects of geopolitical risk are mostly driven by the threat of adverse geopolitical events. Extending our index back to 1900, geopolitical risk rose dramatically during the World War I and World War II, was elevated in the early 1980s, and has drifted upward since the beginning of the 21st century.
A. Ronald Gallant, Mohammad R. Jahan-Parvar, and Hening Liu | We use the Bayesian method introduced by Gallant and McCulloch (2009) to estimate consumption-based asset pricing models featuring smooth ambiguity preferences. We rely on semi-nonparametric estimation of a flexible auxiliary model in our structural estimation. Based on the market and aggregate consumption data, our estimation provides statistical support for asset pricing models with smooth ambiguity. Statistical model comparison shows that models with ambiguity, learning and time-varying volatility are preferred to the long-run risk model. We analyze asset pricing implications of the estimated models.
Colin J. Hottman and Ryan Monarch | Using supplier-level trade data, we estimate the effect on consumer welfare from changes in U.S. imports both in the aggregate and for different household income groups from 1998 to 2014. To do this, we use consumer preferences which feature non-homotheticity both within sectors and across sectors. After structurally estimating the parameters of the model, using the universe of U.S. goods imports, we construct import price indexes in which a variety is defined as a foreign establishment producing an HS10 product that is exported to the United States. We find that lower income households experienced the most import price inflation, while higher income households experienced the least import price inflation during our time period. Thus, we do not find evidence that the consumption channel has mitigated the distributional effects of trade that have occurred through the nominal income channel in the United States over the past two decades.
Mark Gertler, Nobuhiro Kiyotaki, and Andrea Prestipino | This paper incorporates banks and banking panics within a conventional macroeconomic framework to analyze the dynamics of a financial crisis of the kind recently experienced. We are particularly interested in characterizing the sudden and discrete nature of the banking panics as well as the circumstances that makes an economy vulnerable to such panics in some instances but not in others. Having a conventional macroeconomic model allows us to study the channels by which the crisis affects real activity and the effects of policies in containing crises.
Ryan Monarch and Tim Schmidt-Eisenlohr | This paper quantifies the value of importer-exporter relationships. We show that almost 80 percent of U.S. imports take place in pre-existing relationships, with sizable heterogeneity across countries, and show that traded quantities and survival increase as relationships age. We develop a two-country general equilibrium trade model with learning that is consistent with these facts. A model-based measure of relationship value explains survival during the 2008-09 crisis. Knowledge accumulated within long-term relationships is quantitatively important: wiping out all memory from previous interactions, on average, reduces consumption by 5 percent on impact and by 48 percent over the transition back to steady state.
Patrick Moran and Albert Queralto | To what extent can monetary policy impact business innovation and productivity growth? We use a New Keynesian model with endogenous total factor productivity (TFP) to quantify the TFP losses due to the constraints on monetary policy imposed by the zero lower bound (ZLB) and the TFP benefits of tightening monetary policy more slowly than currently anticipated. In the model, monetary policy influences firms incentives to develop and implement innovations. We use evidence on the dynamic effects of R&D and monetary shocks to estimate key parameters and assess model performance. The model suggests significant TFP losses due to the ZLB.
The New York Fed’s Center for Microeconomic Data today issued its Quarterly Report on Household Debt and Credit.
The New York Red’s Center for Microeconomic Data released the April 2018 Survey of Consumer Expectations, which finds modest increases in short- and medium-term inflation expectations.
The Royal Bank of Scotland plc changed its name to NatWest Markets Plc, effective April 30, 2018.
The New York Fed today released results from its February 2018 SCE Housing Survey, which provides information on consumers’ housing-related experiences and expectations.
Firms With Natural Disaster-Related Damages Faced Insurance Mismatches and Sought Credit Financing But Struggled With Funding Gaps
The New York Fed’s Center for Microeconomic Data today released the March 2018 SCE Labor Market Survey.
The Federal Reserve Bank of New York's Center for Microeconomic Data released the March 2018 Survey of Consumer Expectations, which shows no change in short- and medium-term inflation expectations. Consumers were less optimistic about labor market outcomes. In particular, expectations about income growth, the U.S unemployment rate, and the probability of losing one's job all deteriorated slightly in March.
The Federal Reserve Bank of New York today announced that John C. Williams has been named president and chief executive officer. Mr. Williams will begin on June 18, 2018. Current president William C. Dudley’s last day will be June 17.
Today, the New York Fed, in cooperation with the U.S. Office of Financial Research, began publishing three reference rates based on overnight repurchase agreement (repo) transactions collateralized by Treasury securities: the Secured Overnight Financing Rate (SOFR), the Broad General Collateral Rate (BGCR), and the Tri-Party General Collateral Rate (TGCR).
Asset-backed commercial paper outstanding
Financial foreign commercial paper outstanding
Financial domestic commercial paper outstanding
Nonfinancial foreign commercial paper outstanding
Nonfinancial domestic commercial paper outstanding
Total commercial paper outstanding
30-day AA asset-backed commercial paper rate
Overnight AA asset-backed commercial paper rate
30-day AA financial commercial paper rate
Overnight AA financial commercial paper rate
30-day A2/P2 nonfinancial commercial paper rate
Overnight A2/P2 nonfinancial commercial paper rate
30-day AA nonfinancial commercial paper rate
Overnight AA nonfinancial commercial paper rate
OITP currency index (Jan 97 = 100)
Major currency index (Mar 73 = 100)
Broad currency index (Mar 73 = 100)
Venezuela Bolivar
Thailand Baht
Taiwan Dollar
Switzerland Franc
Sweden Krona
Sri Lanka Rupee
South Korea Won
Inflation indexed long-term average
30-year inflation indexed Treasury constant maturity
20-year inflation indexed Treasury constant maturity
10-year inflation indexed Treasury constant maturity
7-year inflation indexed Treasury constant maturity
5-year inflation indexed Treasury constant maturity
30-year Treasury constant maturity
20-year Treasury constant maturity
10-year Treasury constant maturity
7-year Treasury constant maturity
