Can I Speak to Your Supervisor? The Importance of Bank Supervision
Liberty Street Economics
by Beverly Hirtle and Anna Kovner 
2d ago
Beverly Hirtle and Anna Kovner  In March of 2023, the U.S. banking industry experienced a period of significant turmoil involving runs on several banks and heightened concerns about contagion. While many factors contributed to these events—including poor risk management, lapses in firm governance, outsized exposures to interest rate risk, and unrecognized vulnerabilities from interconnected depositor bases, the role of bank supervisors came under particular scrutiny. Questions were raised about why supervisors did not intervene more forcefully before problems arose. In response, supervis ..read more
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The Anatomy of Export Controls 
Liberty Street Economics
by Matteo Crosignani, Lina Han, Marco Macchiavelli, and André F. Silva
4d ago
Matteo Crosignani, Lina Han, Marco Macchiavelli, and André F. Silva Governments increasingly use export controls to limit the spread of domestic cutting-edge technologies to other countries. The sectors that are currently involved in this geopolitical race include semiconductors, telecommunications, and artificial intelligence. Despite their growing adoption, little is known about the effect of export controls on supply chains and the productive sector at large. Do export controls induce a selective decoupling of the targeted goods and sectors? How do global customer-supplier relations react ..read more
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Monetary Policy and Money Market Funds in Europe
Liberty Street Economics
by Marco Cipriani, Daniel Fricke, Stefan Greppmair, Gabriele La Spada, and Karol Paludkiewicz
4d ago
Marco Cipriani, Daniel Fricke, Stefan Greppmair, Gabriele La Spada, and Karol Paludkiewicz As shown in a past Liberty Street Economics post, in the United States, the yields of money market fund (MMF) shares respond to changes in monetary policy rates much more than the rates of bank deposits; in other words, the MMF beta is much higher than the deposit beta. Consistent with this, the size of the U.S. MMF industry fluctuates over the interest rate cycle, expanding during times of monetary policy tightening. In this post, we show that the relationship between the policy rates of the European C ..read more
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A Retrospective on the Life Insurance Sector after the Failure of Silicon Valley Bank
Liberty Street Economics
by Fulvia Fringuellotti and Saketh Prazad
1w ago
Fulvia Fringuellotti and Saketh Prazad Following the Silicon Valley Bank collapse, the stock prices of U.S banks fell amid concerns about the exposure of the banking sector to interest rate risk. Thus, between March 8 and March 15, 2023, the S&P 500 Bank index dropped 12.8 percent relative to S&P 500 returns (see right panel of the chart below). The stock prices of insurance companies tumbled as well, with the S&P 500 Insurance index losing 6.4 percent relative to S&P 500 returns over the same time interval (see the center panel below). Yet, insurance companies’ direct exposur ..read more
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Internal Liquidity’s Value in a Financial Crisis
Liberty Street Economics
by Cecilia Caglio and Adam Copeland
1w ago
Cecilia Caglio and Adam Copeland A classic question for U.S. financial firms is whether to organize themselves as entities that are affiliated with a bank-holding company (BHC). This affiliation brings benefits, such as access to liquidity from other affiliated entities, as well as costs, particularly a larger regulatory burden. This post highlights the results from a recent Staff Report that sheds light on this tradeoff. This work uses confidential data on the population of broker-dealers to study the benefits of being affiliated with a BHC, with a focus on the global financial crisis (GFC ..read more
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Learning by Bouncing: Overdraft Experience and Salience
Liberty Street Economics
by Donald P. Morgan and Wilbert van der Klaauw
2w ago
Donald P. Morgan and Wilbert van der Klaauw Overdraft credit, when banks and credit unions allow customers to spend more than their checking account holds, has many critics. One fundamental concern is whether overdrafts are salient—whether account holders know how often they overdraw and how much it costs them. To shed light on this question, we asked participants in the New York Fed’s Survey of Consumer Expectations about their experience with and knowledge of their banks’ overdraft programs. The large majority knew how often they overdrew their account and by how much. Their overdraft exper ..read more
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Deposits and the March 2023 Banking Crisis—A Retrospective
Liberty Street Economics
by Stephan Luck and Matthew Plosser
3w ago
Stephan Luck and Matthew Plosser In this post, we evaluate how deposits have evolved over the latter portion of the current monetary policy tightening cycle. We find that while deposit betas have continued to rise, they did not accelerate following the bank runs in March 2023. In addition, while overall deposit funding has remained stable, we find that the banks most affected by the March 2023 events are offering higher deposit rates and are growing their deposit funding relative to the broader banking industry. Monetary Policy and Banks’ Security Losses The beginning of 2022 saw unique condi ..read more
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What Happens to U.S. Activity and Inflation if China’s Property Sector Leads to a Crisis?
Liberty Street Economics
by Ozge Akinci, Hunter Clark, Jeff Dawson, Matthew Higgins, Silvia Miranda-Agrippino, Ethan Nourbash, and Ramya Nallamotu
3w ago
Ozge Akinci, Hunter Clark, Jeff Dawson, Matthew Higgins, Silvia Miranda-Agrippino, Ethan Nourbash, and Ramya Nallamotu A previous post explored the potential implications for U.S. growth and inflation of a manufacturing-led boom in China. This post considers spillovers to the U.S. from a downside scenario, one in which China’s ongoing property sector slump takes another leg down and precipitates an economic hard landing and financial crisis. China’s Policy Space Is Becoming More Constrained In this scenario, Chinese authorities’ policy space proves insufficient to forestall a deep and protrac ..read more
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What if China Manufactures a Sugar High?
Liberty Street Economics
by Ozge Akinci, Hunter Clark, Jeff Dawson, Matthew Higgins, Silvia Miranda-Agrippino, Ethan Nourbash, and Ramya Nallamotu
3w ago
Ozge Akinci, Hunter Clark, Jeff Dawson, Matthew Higgins, Silvia Miranda-Agrippino, Ethan Nourbash, and Ramya Nallamotu While the slump in China’s property sector has been steep, Chinese policymakers have responded to the falloff in property activity with policies designed to spur activity in the manufacturing sector. The apparent hope is that a pivot toward production-intensive growth can help lift the Chinese economy out of its current doldrums, which include weak household demand, high levels of debt, and demographic and political headwinds to growth. In a series of posts, we consider the i ..read more
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The New York Fed DSGE Model Forecast—March 2024
Liberty Street Economics
by Marco Del Negro, Pranay Gundam, Donggyu Lee, Ramya Nallamotu, and Brian Pacula
3w ago
Marco Del Negro, Pranay Gundam, Donggyu Lee, Ramya Nallamotu, and Brian Pacula This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since December 2023. As usual, we wish to remind our readers that the DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process. For more information about the model and variables discussed here, see our DSGE model Q & ..read more
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