Speech At the Federal Reserve Bank of Kansas City Town Hall, Kansas City, Missouri
Speech At "Bretton Woods: 75 Years Later—Thinking about the Next 75," a conference organized by the Banque de France and the French Ministry for the Economy and Finance, Paris, France
Speech At the Community Bankers Roundtable, Scranton, Pennsylvania
Speech At "Stress Testing: A Discussion and Review," a research conference sponsored by the Federal Reserve Bank of Boston, Boston, Massachusetts
Speech At "Stress Testing: A Discussion and Review," a research conference at the Federal Reserve Bank of Boston, Boston, Massachusetts
Speech At the Council on Foreign Relations, New York, New York
Speech At the 2019 Interagency Minority Depository Institution and CDFI Bank Conference, Arlington, Virginia
Speech At Policy Summit 2019: Connecting People and Places to Opportunity, Federal Reserve Bank of Cleveland, Cincinnati, Ohio
Speech At the Conference on Monetary Policy Strategy, Tools, and Communication Practices (A Fed Listens Event), Federal Reserve Bank of Chicago, Chicago, Illinois
Speech At the "Conference on Monetary Policy Strategy, Tools, and Communications Practices" sponsored by the Federal Reserve, Federal Reserve Bank of Chicago, Chicago, Illinois
WASHINGTON—FINRA today announced it has fined Citigroup Global Markets Inc. (CGMI) $1.25 million for failing to conduct timely or adequate background checks on approximately 10,400 non-registered associated persons spanning a seven-year period.
WASHINGTON – Market participants have raised questions concerning the application of the federal securities laws and the rules of the Financial Industry Regulatory Authority (“FINRA”) to the potential intermediation—including custody—of digital asset securities1 and transactions.
WASHINGTON—FINRA announced today that it has sanctioned Summit Brokerage Services, Inc. (Summit) a total amount exceeding $880,000 for supervisory failures, including approximately $558,000 in restitution to customers whose accounts were excessively traded by a former registered representative of the firm who was previously barred by FINRA.
WASHINGTON – The FINRA Investor Education Foundation (FINRA Foundation) today announced the recipients of its higher-education awards created to recognize outstanding analyses by researchers-in-training who seek to advance understanding of consumer well-being and the complex relationships among financial literacy, financial capability and financial well-being.
Washington D.C., May 23, 2019 – In recognition of the one-year anniversary of the passage of The Senior Safe Act, the North American Securities Administrators Association (NASAA), the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have issued a fact sheet to help raise awareness among broker-dealers, investment advisers, and transfer agents of the Act and how the Act’s immunity provisions work.
Federal Reserve to offer seven-day term deposits on August 22
Federal Reserve announces plan to develop a new round-the-clock real-time payment and settlement service to support faster payments
Federal Reserve Board approves actions by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, Richmond, Atlanta, Minneapolis, and Kansas City
Federal Reserve issues FOMC statement
Agencies complete resolution plan evaluations and extend deadline for certain firms
Federal Reserve Board announces termination of enforcement actions with Mesaba Bancshares, Inc. and First National Financial Services, Inc.
Agencies release public sections of resolution plans for eight large banks
Federal bank regulatory agencies and FinCEN improve transparency of risk-focused BSA/AML supervision
Federal bank regulatory agencies announce coordination of reviews for certain foreign funds under Volcker Rule
Federal Reserve Board announces approval of application by Chemical Financial Corporation
What specific steps does the Board take to issue a regulation?
How does the Board revise a regulation?
What is the role of Board members when the Federal Reserve Board issues a regulation?
What is a regulation and how is it made?
What is financial stability?
What is aggregate demand?
What changes were made to federalreserve.gov during the redesign?
The United States Attorney's Office announced that Kenneth Charity, age 54, a resident of New Orleans, Louisiana, pleaded guilty today to conspiring to defraud First NBC Bank, the New Orleans-based bank that failed in April 2017.
The Bureau plans to move to a cloud-only IT infrastructure by 2022, with some of the stated benefits being cost reduction and improvement in service quality. It currently leverages FedRAMP, a governmentwide program offering a risk-based approach to the
The Work Plan presents the audits and evaluations we are conducting to help the Board and the Bureau fulfill their respective missions.
The United States Attorney's Office announced that Gregory St. Angelo, age 54, a resident of St. Tammany Parish, pled guilty Friday, June 28, 2019, to conspiring to defraud First NBC Bank, the New Orleans-based bank that failed in April of 2017.
Consumers have submitted over 1.7 million complaints about financial products and services with the Bureau since 2011. The agency shares complaint data internally to inform its work. The Bureau has developed tools to help staff search, summarize . . .
Summary of significant audit, evaluation, and investigative work concerning the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection we completed from October 1, 2018, through March 31, 2019.
Gordon Y. Liao | This paper examines the connection between deviations in covered interest rate parity and differences in the credit spread of bonds of similar risk but different currency denomination. These two pricing anomalies are highly aligned in both the time series and the cross-section of currencies. The composite of these two pricing deviations – the corporate basis – represents the currency-hedged borrowing cost difference between currency regions and explains up to a third of the variation in the aggregate corporate debt issuance flow. I show that arbitrage aimed at exploiting one type of security anomaly can give rise to the other.
Appendix (PDF)
Miguel Ampudia and Skander J. Van den Heuvel | Does banks' exposure to interest rate risk change when interest rates are very low or even negative? Using a high-frequency event study methodology and intraday data, we find that the effect of surprise interest rate cuts announced by the ECB on European bank equity values – an effect that is normally positive – has become negative since interest rates in the euro area reached zero and below. Since then, a further unexpected cut of 25 basis points in the short-term policy rate lowered banks' stock prices by about 2% on average, compared to a 1% increase in normal times. In the cross section, this 'reversal' was far more pronounced for banks with a more traditional, deposit-intensive funding mix. We argue that the reversal as well as its cross-sectional pattern can be explained by the zero lower bound on interest rates on retail deposits.
Maria D. Tito | Using transaction data for the U.S., this paper presents a series of stylized facts on exporters in services industries. We find that most of the basic facts on manufacturing exporters extend to the services sectors with three important differences. First, the participation rate of services firms in foreign markets is much lower than that of manufacturing firms. Second, the size premia at services exporters are significantly higher than those among manufacturers. Third, the survival rates of services exporters tend to be lower than that of manufacturing exporters. All three facts are compatible with the hypothesis that firms in services sectors face larger trade costs. A simple calibration suggests that services firms face two-to-three-time higher fixed costs than manufacturing exporters.
Patrick Coate, Pawel Krolikowski, and Mike Zabek | The earnings of young adults who live in the same neighborhoods as their parents completely recover after a job displacement, unlike the earnings of young adults who live farther away, which permanently decline. Nearby workers appear to benefit from help with childcare since grandmothers are less likely to be employed after their child's job displacement and since the earnings benefits are concentrated among young adults who have children. The result also suggests that parental employment networks improve earnings. Differences in job search durations, transfers of housing services, and geographic mobility, however, are too small to explain the result.
Ozge Akinci and Albert Queralto | We use a two-country New Keynesian model with financial frictions and dollar debt in balance sheets to investigate the foreign effects of U.S. monetary policy. Financial amplification works through an endogenous deviation from uncovered interest parity (UIP) arising from limits to arbitrage in private intermediation. Combined with dollar trade invoicing, this mechanism leads to large spillovers from U.S. policy, consistent with the evidence. Foreign monetary policies that attempt to stabilize the exchange rate reduce welfare, and may exacerbate exchange rate volatility. We document empirically a link between UIP deviations and measures of credit market frictions, as predicted by the model.
Joshua H. Gallin, Raven Molloy, Eric Nielsen, Paul Smith, and Kamila Sommer | We construct a new measure of aggregate housing wealth for the U.S. based on (1) home-value estimates derived from machine learning algorithms applied to detailed information on property characteristics and recent transaction prices, and (2) Census housing unit counts. According to our new measure, the timing and amplitude of the recent house-price cycle differs materially but plausibly from commonly-used measures, which are based on survey data or repeat-sales price indexes. Thus, our methodology generates estimates that should be of considerable value to researchers and policymakers interested in the dynamics of aggregate housing wealth.Original paper (PDF) | Accessible materials (.zip)
Garth Baughman and Francesca Carapella | This note presents a simplifed version of the model of voluntary reserve targets (VRT) developed in Baughman and Carapella (forthcoming), with a Walrasian interbank market. First, the model makes transparent the role of target setting in controlling the market rate. Second, the simplicity of the model allows for an analysis of the interaction between VRT and tolerance bands, which are a common tool for controlling rate variability. We find that the persistent overshooting of interbank rates observed during the Bank of England's experiment with VRT may derive from the interaction between target setting and tolerance bands, a new explanation relative to the literature. We also suggest a simple remedy.
Yang-Ho Park | This paper introduces a new model-free approach to measuring the expectation of market variance using VIX derivatives. This approach shows that VIX derivatives carry different information about future variance than S&P 500 (SPX) options, especially during the 2008 financial crisis. I find that the segmentation is associated with frictions such as funding illiquidity, market illiquidity, and asymmetric information. When they are segmented, VIX derivatives contribute more to the variance discovery process than SPX options. These findings imply that VIX derivatives would offer a better estimate of expected variance than SPX options, and that a measure of segmentation may be useful for policymakers as it signals the severity of frictions.
Gaetano Antinolfi, Francesca Carapella, and Francesco Carli | This paper adopts a mechanism design approach to study optimal clearing arrangements for bilateral financial contracts in which an assessment of counterparty risk is crucial for efficiency. The economy is populated by two types of agents: a borrower and lender. The borrower is subject to limited commitment and holds private information about the severity of such lack of commitment. The lender can acquire information at a cost about the commitment of the borrower, which affects the assessment of counterparty risk. When truthful revelation by the borrower is not incentive compatible, the mechanism designer optimally trades off the value of information about the lack of commitment of the borrower with the cost of incentivizing the lender to acquire such information. Central clearing of these financial contracts through a central counterparty (CCP) allows lenders to mutualize their counterparty risks, but this insurance may weaken incentives to acquire and reveal informatio n about such risks. If information acquisition is incentive compatible, then lenders choose central clearing. If it is not, they may prefer bilateral clearing to prevent strategic default by borrowers and to economize on costly collateral. Central clearing is analyzed under different institutional features observed in financial markets, which place different restrictions on the contract space in the mechanism design problem. The interaction between the costly information acquisition and the limited commitment friction differs significantly in each clearing arrangement and in each set of restrictions. This results in novel lessons about the desirability of central versus bilateral clearing depending on traders' characteristics and the institutional features defining the operation of the CCP.
Bert Loudis and Ben Ranish | We find that that the Current Expected Credit Loss (CECL) standard would slightly dampen fluctuations in bank lending over the economic cycle. In particular, if the CECL standard had always been in place, we estimate that lending would have grown more slowly leading up to the financial crisis and more rapidly afterwards. We arrive at this conclusion by estimating historical allowances under CECL and modeling how the impact on accounting variables would have affected banks' lending and capital distributions. We consider a variety of approaches to address uncertainty regarding the management of bank capital and predictability of credit losses.
Sarah S. Baker, David López-Salido, and Edward Nelson | We evaluate the relative merits of the "money view" and "credit view" as accounts of macroeconomic outcomes. We first lay out core elements of the money view as articulated by Friedman and Schwartz. We then reconsider the findings regarding the money view versus the credit view in recent literature. Schularick and Taylor's (2012) result that credit outperforms money in predicting financial crises is fully consistent with the money view of macroeconomic outcomes; consequently, one needs to examine those outcomes directly to discriminate between the money view and the credit view. Our analysis of the postwar evidence suggests that money outperforms credit in predicting economic downturns in the 14 countries included in the Schularick-Taylor database. For our reexamination of the evidence, we have constructed new, more reliable, annual data on money.
Original paper (PDF) | Accessible materials (.zip)
Laura J. Feiveson and John Sabelhaus | Empirical analysis of U.S. income, saving and wealth dynamics is constrained by a lack of high-quality and comprehensive household-level panel data. This paper uses a pseudo-panel approach, tracking types of agents by birth cohort and across time through a series of cross-section snapshots synthesized with macro aggregates. The key micro source data is the Survey of Consumer Finances (SCF), which captures the top of the wealth distribution by sampling from administrative records. The SCF has the detailed balance sheet components, incomes, and interfamily transfers needed to use both sides of the intertemporal budget constraint and thus solve for saving and consumption. The wealth change decomposition by age and agent type provides a new set of benchmarks for heterogeneous agent macro models, reconciling observed anomalies about lifecycle saving behavior and emphasizing the importance of generally unmeasured incomes (interfamily transfers and capital gains) in wealth accumulation dynamics.
Taisuke Nakata and Sebastian Schmidt | We study optimal monetary and fiscal policy in a New Keynesian model where occasional declines in agents' confidence give rise to persistent liquidity trap episodes. There is no straightforward recipe for enhancing welfare in this economy. Raising the inflation target or appointing an inflation-conservative central banker mitigates the inflation shortfall away from the lower bound but exacerbates deflationary pressures at the lower bound. Using government spending as an additional policy instrument worsens allocations at and away from the lower bound. However, appointing a policymaker who is sufficiently less concerned with government spending stabilization than society eliminates expectations-driven liquidity traps.
Galina Hale, Tümer Kapan, and Camelia Minoiu | We study the transmission of financial shocks across borders through international bank connections. Using data on cross-border interbank loans among 6,000 banks during 1997-2012, we estimate the effect of asset-side exposures to banks in countries experiencing systemic banking crises on profitability, credit, and the performance of borrower firms. Crisis exposures reduce bank returns and tighten credit conditions for borrowers, constraining investment and growth. The effects are larger for foreign borrowers, including in countries not experiencing banking crises. Our results document the extent of cross-border crisis transmission, but also highlight the resilience of financial networks to idiosyncratic shocks.
Sarah Chae, Robert F. Sarama, Cindy M. Vojtech, and James Wang | CECL, the new credit loss provisioning standard, is intended to promote proactive provisioning as loan loss reserves must incorporate forward-looking assumptions. We study how one assumption—expectations about future house prices—affects the size and timing of provisions for residential mortgage portfolios. While provisions under CECL are generally less pro-cyclical compared to the incurred loss standard under various forecasts and measures of pro-cyclicality, CECL may complicate the comparability of provisions across banks and time. Market participants will need to disentangle the degree to which variation in provisions across firms is driven by underlying risk versus idiosyncratic differences in forecasting methods.Original Paper (PDF) | Accessible materials (.zip)
David M. Byrne and Carol Corrado | This paper develops a framework for measuring digital services in the face of ongoing innovations in the delivery of content to consumers. We capture what Brynjolfsson and Saunders (2009) call "free goods" as the capital services generated by connected consumers' stocks of IT digital goods; this service flow augments the existing measure of personal consumption in GDP. Its value is determined by the intensity with which households use their IT capital to consume content delivered over networks, and its volume depends on the quality of the IT capital. Consumers pay for delivery services, however, and the complementarity between device use and network use enables us to develop a quality-adjusted price measure for the access services already included in GDP. Our new estimates imply that accounting for innovations in consumer content delivery matters: The innovations boost consumer surplus by nearly $1,800 (2017 dollars) per connected user per year for the full period of this study (1987 to 2017) and contribute more than 1/2 percentage point to US real GDP growth during the last ten. All told, our more complete accounting of innovations is (conservatively) estimated to have moderated the post-2007 GDP growth slowdown by nearly .3 percentage points per year.
Chunya Bu, John Rogers, and Wenbin Wu | Identification of Fed monetary policy shocks is complex, in light of the distinct policymaking regimes before, during, and after the ZLB period of December 2008 to December 2015. We develop a heteroscedasticity-based partial least squares approach, combined with Fama-MacBeth style cross-section regressions, to identify a US monetary policy shock series that usefully bridges periods of conventional and unconventional policymaking and is effectively devoid of the central bank information effect. Our series has moderately high correlation with well-known shocks in the literature, but has crucially important differences. Following conventional tests, we find scant evidence of the information effect in our measure. We attribute the source of these different findings to our econometric procedure and our use of the full maturity spectrum of interest rate instruments in constructing our measure. We then present evidence confirming an hypothesis in the literature that the information effect can lead to the result that shocks to monetary policy have transmission effects with signs that differ from traditional theory. We find that shocks to series that are devoid of (embody) the information effect display conventionally-signed (perverse) impulse responses of output and inflation. This provides evidence of first-order importance to staff at central banks undertaking quantitative theoretical modeling of the effects of monetary policy.
Original paper: PDF
Chunya Bu, John Rogers, and Wenbin Wu | Identification of Fed monetary policy shocks is complex, in light of the distinct policymaking regimes before, during, and after the ZLB period of December 2008 to December 2015. We develop a heteroscedasticity-based partial least squares approach, combined with Fama-MacBeth style cross-section regressions, to identify a US monetary policy shock series that usefully bridges periods of conventional and unconventional policymaking and is effectively devoid of the central bank information effect. Our series has moderately high correlation with the shocks identified by Nakamura and Steinsson (2018), Swanson (2018), and Jarocinski and Karadi (2018), but has crucially important differences. Following both the Nakamura-Steinsson and Jarocinski-Karadi empirical tests, we find scant evidence of the information effect in our measure. We attribute the source of these different findings to our econometric procedure and our use of the full maturity spectrum of interest rate instrume nts in constructing our measure. We then present evidence confirming an hypothesis in the literature that the information effect can lead to the result that shocks to monetary policy have transmission effects with signs that differ from traditional theory. We find that shocks to series that are devoid of (embody) the information effect display conventionally-signed (perverse) impulse responses of output and inflation. This provides evidence of first-order importance to staff at central banks undertaking quantitative theoretical modeling of the effects of monetary policy.
Michael J. Lamla, Damjan Pfajfar, and Lea Rendell | We explore the consequences of losing confidence in the price-stability objective of central banks by quantifying the inflation and deflationary biases in inflation expectations. In a model with an occasionally binding zero-lower-bound constraint, we show that an inflation bias as well as a deflationary bias exist as a steady-state outcome. We assess the predictions of this model using unique individual-level inflation expectations data across nine countries that allow for a direct identification of these biases. Both inflation and deflationary biases are present (and sizable) in inflation expectations of these individuals. Among the euro-area countries in our sample, we can document significant differences in perceptions of the European Central Bank's objectives, despite having a common monetary policy.
Zhenzhen Fan, Juan M. Londono, and Xiao Xiao | We find that a US equity tail risk factor constructed from out-of-the-money S&P 500 put option prices explains the cross-sectional variation of currency excess returns. Currencies highly exposed to this factor offer a low currency risk premium because they appreciate when US tail risk increases. In a reduced-form model, we show that country-specific tail risk factors are priced in the cross section of currency returns only if they contain a global risk component. Motivated by the intuition from the model and by our empirical results, we construct a novel proxy for a global tail risk factor by buying currencies with high US equity tail beta and shorting currencies with low US tail beta. This factor, along with the dollar risk factor, explains a large portion of the cross-sectional variation in the currency carry and momentum portfolios and outperforms other models widely used in the literature.
Lewis Gaul, Jonathan Jones, and Pinar Uysal | We investigate whether statistical learning models can contribute to supervisors' off-site monitoring of banks' overall condition. We use five statistical learning and two forecast combination models to forecast high-risk composite CAMELS ratings over time (1984-2015), where a high-risk composite CAMELS rating is defined as a CAMELS rating of 3, 4, or 5. Our results indicate that the standard logit model, which is already widely used to forecast CAMELS ratings, comes close enough to be an adequate model for predicting high-risk ratings. We also find that the overall accuracy of the individual forecasts could be modestly improved upon by using forecast combination methods.
Seung Jung Lee, Lucy Qian Liu, and Viktors Stebunovs | We study the effects of U.S. interest rates and other factors on risk-taking in the global market for U.S. dollar syndicated term loans. We find that, before the Global Financial Crisis, both U.S. and non-U.S. lenders originated ex ante riskier loans to non-U.S. borrowers in response to a decline in short-term U.S. interest rates and, after the crisis, in response to a decline in longer-term U.S. interest rates. After the crisis, this behavior was more prominent for shadow banks and less prominent for banks with relatively low capital. Separately, before the crisis, lenders originated less risky loans in response to U.S. dollar appreciation. Across the periods, the responses to risk appetite and economic uncertainty varied. To the extent that the Federal Reserve affects U.S. interest rates, we provide evidence of global risk-taking spillovers of U.S. monetary policy, which are important but not dominant factors for risk-taking in the market.
Eva de Francisco | This paper proposes a model to jointly explain some of the heterogeneous individual consumption behavior found in the recent empirical literature, such as the existence of a significant size of wealthy hand-to-mouth consumers, and negative marginal propensities to consume associated with housing upgrades. Agents live for a finite horizon, are heterogeneous in initial wealth, and can save in a liquid asset, and in an illiquid housing asset, that also provides housing services. When housing choices are very limited, the model replicates these empirical findings. Moreover, in the presence of unanticipated income shocks and endogenous credit constraints, this richness in marginal propensities to consume has significant implications for aggregate consumption, and helps explain the consumption behavior documented during the Great Recession as well as the consumption responses to recent tax rebates.
Despite Most Firms Being Primary Sources of Income for their Owners, 55% Were Not Profitable; Data Reveal Racial Disparities in Financing Access
The New York Fed’s Center for Microeconomic Data today issued its Quarterly Report on Household Debt and Credit, which shows that total household debt increased by $192 billion (1.4%) to $13.86 trillion in the second quarter of 2019.
The New York Fed’s Center for Microeconomic Data released the July 2019 Survey of Consumer Expectations, which shows a 0.1 percentage points decline in both short- and medium-term inflation expectations.
The Federal Reserve Bank of New York today announced that it will restructure the leadership of the Markets Group to best meet its critical responsibilities. The previous position of Executive Vice President and Head of the Markets Group will be split into two roles: an Executive Vice President and Head of the Markets Group, and an Executive Vice President and Manager of the System Open Market Account (SOMA).
At its meeting on July 30-31, 2019, the Federal Open Market Committee decided to conclude the reduction of aggregate securities holdings in the System Open Market Account two months earlier than previously indicated. The FOMC directed the Open Market Trading Desk at the New York Fed to roll over at auction all principal payments from the Federal Reserve’s holdings of Treasury securities and to reinvest all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities effective August 1, 2019.
Initiative To Match Financial Institutions With CRA-Eligible Projects; Launch Slated For Fall 2019 In Puerto Rico.
The New York Fed today updated its Statement of Compliance with the IOSCO Principles for Financial Benchmarks to cover the inclusion of “selected deposit” transactions in the overnight bank funding rate.
Summary and video highlight takeaways from New York Fed discussions on reviewing the strategy and communications practices the Fed uses to pursue its dual mandate.
The New York Fed’s Center for Microeconomic Data released the June 2019 Survey of Consumer Expectations, which shows an increase in short- and medium- term inflation expectations.
The New York Fed's Center for Microeconomic Data released the May 2019 Survey of Consumer Expectations, which shows a decline in short- and medium- term inflation expectations.
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