Liberty Street Economics
October 20, 2014

Don’t Be Late! The Importance of Timely Settlement of Tri-Party Repo Contracts



Tri-party repo is popular among securities dealers as a way to raise short-term funding. The tri-party repo settlement process has been improved, and continues to be improved, with the implementation of a set of recent reforms. Two main goals of these reforms are to sharply reduce the amount of liquidity needed to facilitate the settlement of tri-party repo contracts, and to increase the use of more resilient sources of liquidity (for example, term financing and committed credit) to ensure that settlement can occur in good and bad times. In this post, we detail how the reforms have affected the sources of liquidity that dealers can use to facilitate settlement of tri-party repo contracts. We then explain cash investors’ role in the settlement process, and highlight how their current practice of sending principal payments late in the day disrupts the timely settlement of tri-party repo contracts.


October 17, 2014

New York City’s Not-So-Outer Boroughs



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Ever since the first census of the U.S. population was taken, back in 1790, New York City has been the nation’s largest city, and for most of this time by a factor of more than two. But how has the city—in particular, the city’s boundaries—evolved over time?

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

October 15, 2014

How Do Liquidity Conditions Affect U.S. Bank Lending?



The recent financial crisis underscored the importance of understanding how liquidity conditions for banks (or other financial institutions) influence the banks’ lending to domestic and foreign customers. Our recent research examines the domestic and international lending responses to liquidity risks across different types of large U.S. banks before, during, and after the global financial crisis. The analysis compares large global U.S. banks—that is, those that have offices in foreign countries and are able to move liquidity from affiliates across borders—with large domestic U.S. banks, which have to rely on financing raised in capital markets and from depositors to extend credit and issue loans. One key result of our study, detailed below, is that the internal liquidity management by global banks has, on average, mitigated the effects of aggregate liquidity shocks on domestic lending by these banks.

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

October 10, 2014

Historical Echoes: “Burns Money” on What’s My Line?

Amy Farber

WhatsMyLine_HULL In a May 2014 Historical Echoes post, Marja Vitti describes what happened to money too old to be left in circulation: it was incinerated by the Federal Reserve Banks until passage of the Clean Air Act of 1970, after which the money was shredded. Paper money incineration by a Federal Reserve Bank employee was the subject of a hilarious broadcast of the famous TV quiz show What’s My Line? In this broadcast, which aired on June 12,  1960, Thomas Hull, in charge of burning the money for the Federal Reserve Bank of New York, steps onto the set, writes his name on the chalkboard, and when asked by John Daly, the show’s host, where he comes from, needs to repeat “Lake Ronkonkoma, New York” three times before he is understood clearly. You might think that this is why Mr. Daly answers so many of the panelists’ questions himself rather than letting Mr. Hull answer them. But you’d be wrong—he does this for pretty much every contestant to ensure that communications are clear and the game remains fair.

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

October 08, 2014

Demographic Trends and Growth in Japan and the United States



IStock_000042647488Small_300 Japan’s population is shrinking and getting older, with the population falling at a 0.2 percent rate this year and the working-age population (ages 16 to 64) falling at a much faster rate of almost 1.5 percent. In contrast, the U.S. population is rising at a 0.7 percent annual rate and the working-age population is rising at a 0.2 percent rate. So far, supporting the growing share of Japan’s population that is 65 and over has been the substantial increase in the share of working-age women entering the labor force. In contrast, U.S. labor force participation rates have been falling for both men and women. Japan’s labor market adjustments help explain the steady, albeit, modest growth in output per person despite the surge in the 65 and over cohort. Indeed, Japan has been able to match U.S. per capita growth since 2000.

October 06, 2014

What Can We Learn from Prior Periods of Low Volatility?



Volatility, a measure of how much financial markets are fluctuating, has been near its record low in many asset classes. Over the last few decades, there have been only two other periods of similarly low volatility: in May 2013, and prior to the financial crisis in 2007. Is there anything we can learn from the recent period of low volatility versus what occurred slightly more than one year ago and seven years ago? Probably; the current volatility environment appears quite similar to the one in May 2013, but it’s substantially different from what happened prior to the financial crisis.

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

October 03, 2014

Crisis Chronicles: The Crisis of 1816, the Year without a Summer, and Sunspot Equilibria



In 1815, England emerged victorious after what had been nearly a quarter century of war with France. And during those years, encouraged by high prices and profits, England greatly expanded its agricultural and industrial capacity in terms of land and new machinery, with these activities often financed on credit. Improved harvests from 1812 to 1815 coincided with an export market boom in 1814, as the continent began to reopen for trade and speculation in South America increased. But the speculation turned to frenzy compared to the boom of 1810 as everything that could be shipped was shipped—until the speculation broke. The crisis started first with farmers and landlords, spread to business and industry, and was followed by mass starvation on the continent. In this edition of Crisis Chronicles, we recount the Crisis of 1816, the Year without a Summer, and the idea of Sunspot Equilibria.

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

October 01, 2014

Cross-Country Evidence on Transmission of Liquidity Risk through Global Banks

Claudia M. Buch, James Chapman, and Linda Goldberg

Over the past thirty years, the typical large bank has become a global entity with subsidiaries in many countries. In parallel, financial liberalization has increased the interconnectedness of banking systems, with domestic banking systems becoming more exposed to shocks transmitted through foreign banks. This globalization of banking propagated liquidity risk during the global financial crisis and subsequent euro area crisis. Unfortunately, little is known about how cross-border operations of global banks transmit liquidity shocks between countries. The seminal work by Peek and Rosengren (1997, 2000) provides early examples of how bank-level data can help identify the specific transmission channels. There are, however, two limitations to conducting this line of research. First, there is a lack of public data on the balance sheets of global banks. Second, it is difficult to compare the results of different research projects that use sensitive supervisory data collected by banking supervisors and central banks. Together with other scholars, we established the International Banking Research Network (IBRN) to overcome these limitations.

September 30, 2014

Do Unemployment Benefits Expirations Help Explain the Surge in Job Openings?



Job openings are arguably one of the most important indicators of recovery in the labor market, as they reflect employers’ willingness to hire. The number of job openings has recovered steadily since the recession, yet through the end of 2013, the openings rate was still substantially below its pre-recession peak (see chart below). Starting in January 2014, however, the number of job openings increased dramatically, up by 20 percent through June 2014, and job openings relative to employment jumped back to the peak of the previous expansion. In this post, we argue that the expiration of the Emergency Unemployment Compensation (EUC) program may have contributed to this rapid rise in 2014.

Posted by Blog Author at 7:00 AM in Labor Economics , Macroecon | Permalink | Comments ( 5 )

September 29, 2014

Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks

Kenneth D. Garbade

From time to time, and most recently in the April 2014 meeting of the Treasury Borrowing Advisory Committee, U.S. Treasury officials have questioned whether the Treasury should have a safety net that would allow it to continue to meet its obligations even in the event of an unforeseen depletion of its cash balances. (Cash balances can be depleted by an unanticipated shortfall in revenues or a spike in disbursements, an inability to access credit markets on a timely basis, or an auction failure.) The original version of the Federal Reserve Act provided a robust safety net because the act implicitly allowed Reserve Banks to buy securities directly from the Treasury. This post reviews the history of the Fed’s direct purchase authority. (A more extensive version of the post appears in this New York Fed staff report.)

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Liberty Street Economics features insight and analysis from economists working at the intersection of research and Fed policymaking.

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