Liberty Street Economics
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October 24, 2016

Are Banks Being Roiled by Oil?

LSE_Are Banks Being Roiled by Oil?

Profits and employment in the oil and natural gas extraction industry have fallen significantly since 2014, reflecting a sustained decline in energy prices. In this post, we look at how these tremors are affecting banks that operate in energy industry–intensive regions of the United States. We find that banks in the “oil patch” have experienced a significant rise in delinquencies on commercial and industrial loans. So far though, there appears to be limited evidence of spillovers to other types of loans and no evidence of widespread bank losses or failures in these regions.

Posted by Blog Author at 7:00 AM in Financial Institutions | Permalink | Comments ( 0 )

October 21, 2016

From the Vault: Funds, Flight, and Financial Stability

The money market industry is in the midst of significant change. With the implementation this month of new Securities and Exchange Commission rules designed to make money market funds (MMFs) more resilient to stress, institutional prime and tax-exempt funds must report more accurate prices reflecting the net asset value (NAV) of shares based on market prices for the funds’ asset holdings, rather than promising a fixed NAV of $1 per share. The rules also permit prime funds, which invest in a mixture of corporate debt, certificates of deposit, and repurchase agreements, to impose fees or set limits on investors who redeem shares when market conditions sharply deteriorate. (Funds investing in government securities, which are more stable, are not subject to the new rules.) These changes, driven by a run on MMFs at the height of the financial crisis, add to earlier risk-limiting rules on portfolio holdings.

October 19, 2016

Lower Manhattan since 9/11: A Study in Resilience

Jason Bram and Joelle Scally

LSE_Lower Manhattan since 9/11: A Study in Resilience

The 9/11 terrorist attack on the World Trade Center left a deep scar on New York City and the nation, most particularly in terms of the human toll. In addition to the lives lost and widespread health problems suffered by many others—in particular by first responders and recovery workers—the destruction of billions of dollars’ worth of property and infrastructure led to severe disruptions to the local economy. Nowhere were these disruptions more severe and long-lasting than in the neighborhoods closest to Ground Zero.

Posted by Blog Author at 10:00 AM in Regional Analysis | Permalink | Comments ( 0 )

October 17, 2016

What Caused the Decline in Interstate Migration in the United States?

LSE_What Caused the Decline in Interstate Migration in the United States?

Geographic mobility is thought to be important both for economic mobility and for the efficiency of a labor market in allocating the right people to the right jobs. Accordingly, the willingness of the U.S. workforce to move is a factor behind the greater dynamism of the U.S. labor market compared to Europe. While Europeans tend to be more reluctant to move to distant places within their respective countries, the idea of moving across state borders for a job has been woven into the fabric of the American Dream. However, the image of the United States as a mobile nation has changed substantially over recent decades. This post investigates the role that demographic shifts—in particular, the nation’s aging population—have played in the recent decline in interstate migration.

October 14, 2016

Historical Echoes: The Bank Teller Action Figure, or It’s All in the Packaging

LSE_Historical Echoes: The Bank Teller Action Figure, or It’s All in the Packaging

This is a story about a humorous bank ad that morphed into a promotional campaign. It’s a tale that shares themes with four previous Historical Echoes posts about Barbie, bank promotions, and bank tellers.

Posted by Blog Author at 7:00 AM in Historical Echoes | Permalink | Comments ( 3 )

October 12, 2016

Let the Light In: How Financial Reporting and Transparency Improve Corporate Governance

Let the Light In: How Financial Reporting and Transparency Improve Corporate Governance

Financial reporting is valuable because corporate governance—which we view as the set of contracts that help align managers’ interests with those of shareholders—can be more efficient when the parties commit themselves to a more transparent information environment. This is a key theme in our recent article “The Role of Financial Reporting and Transparency in Corporate Governance,” which reviews the literature on the part played by financial reporting in resolving agency conflicts among managers, directors, and shareholders. In this post, we highlight some of the governance issues and recommendations discussed in the article.

October 07, 2016

At the N.Y. Fed: Workshops and New Research on Improving Bank Culture and Governance

LSE_At the N.Y. Fed: Workshops and New Research on Improving Bank Culture and Governance

The New York Fed takes bank culture and governance seriously. As Bank President William Dudley said at a 2014 workshop for policymakers and industry participants, improving the culture and governance of banks is “an imperative,” both to ensure financial stability and to deepen public trust in our financial system. The Bank built on that first workshop with a second in November 2015 and will host a third event later this month, on October 20.

Posted by Blog Author at 7:00 AM in Financial Institutions | Permalink | Comments ( 1 )

October 05, 2016

Why Did the Recent Oil Price Declines Affect Bond Prices of Non-Energy Companies?

LSE_Why Did the Recent Oil Price Declines Affect Bond Prices of Non-Energy Companies?

Oil prices plunged 65 percent between July 2014 and December of the following year. During this period, the yield spread—the yield of a corporate bond minus the yield of a Treasury bond of the same maturity—of energy companies shot up, indicating increased credit risk. Surprisingly, the yield spread of non‑energy firms also rose even though many non‑energy firms might be expected to benefit from lower energy‑related costs. In this blog post, we examine this counterintuitive result. We find evidence of a liquidity spillover, whereby the bonds of more liquid non‑energy firms had to be sold to satisfy investors who withdrew from bond funds in response to falling energy prices.

October 03, 2016

Fear of $10 Billion

Update (10.3.16). When this post was published earlier today, the first and second column heads of the table were reversed. We have corrected the column heads and clarified the associated text.

LSE_Fear of $10 Billion

Ten billion has become a big number in banking since the Dodd-Frank Act of 2010. When banks’ assets exceed that threshold, they face considerably heightened supervision and regulation, including exams by the Consumer Financial Protection Bureau, caps on interchange fees, and annual stress tests. There are plenty of anecdotes about banks avoiding the $10 billion threshold or waiting to cross with a big merger, but we’ve seen no systematic evidence of this avoidance behavior. We provide some supporting evidence below and then discuss the implications for size-based bank regulation—where compliance costs ratchet up with size—more generally.

Posted by Blog Author at 7:00 AM in Financial Institutions | Permalink | Comments ( 0 )

September 30, 2016

From the Vault: Does Forward Guidance Work?

In recent months, there have been some high-profile assessments of how far the Federal Reserve has come in terms of communicating about monetary policy since its “secrets of the temple” days. While observers say the transition to greater transparency “still seems to be a work in progress,” they note the range of steps the Fed has taken over the years to shed light on its strategy, including issuing statements to announce and explain policy changes following Federal Open Market Committee (FOMC) meetings, post-meeting press conferences and minutes, FOMC-member speeches and testimony, and “forward guidance” in all its variants.

Posted by Blog Author at 7:00 AM in Inflation | Permalink | Comments ( 2 )

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