It shows how mutual funds can best design swing pricing for effectiveness at preventing runs, even under extreme market stress. 18-04) This paper studies the role of learning and reputation in economic networks, such as interbank lending and derivatives trading networks, in times of market distress or financial crisis.
The paper finds that double liability did not reduce bank risk before the Great Depression, but that deposits were less susceptible to runs. 18-06) This paper uses a model of trade in over-the-counter markets to assess the impact of trade frictions, why prices may vary across intermediaries and customers, and the financial stability implications from the price impact of a dealer’s failure.
Proprietary credit default swap data are used to estimate the model. 18-05) This paper develops a model of a downward spiral of falling prices and increasing redemptions that can lead to the failure of a mutual fund.
It finds evidence that the rule has increased the cost of liquidity provided by firms it covers, but not decreased the firms’ exposure to liquidity risk.
It also finds that the rule has decreased the market share of covered firms.
These bonds can force investors to absorb losses when a bank is under stress. The laws concentrated reserves in New York and regional cities, creating systemically important banks.
The authors find that heightened uncertainty about discretion by banks on when to make payments to investors and by regulators on when to trigger a loss absorption mechanism worsened price declines in a stressed market. 17-02) This paper describes how to set margin levels for derivatives contracts so that margin calls do not add to market stress during times of instability. Certain qualities of volatility should be taken into account to set the most effective margin levels without adding to market stress. 17-01) The authors create an agent-based model that can help regulators understand risk in the interbank funding market. 16-14) This paper uses unique data to analyze how the national banking acts in 18 reshaped the U. The paper shows this concentration made contagion more likely if big banks faced economic shocks. 16-13) This paper assesses the risk of contagion in the credit default swap (CDS) market.Views and opinions expressed are those of the authors and do not necessarily represent official positions or policy of the OFR or Treasury.This paper examines the impact of the Volcker rule, which bans proprietary trading by commercial banks and their affiliates, with some exceptions.This series allows members of the OFR staff and their coauthors to disseminate preliminary research findings in a format intended to generate discussion and critical comments.Comments and suggestions for improvements to these papers are welcome and should be directed to the authors.The authors find negative sentiment extracted from tens of thousands of news articles about 50 large financial services companies is useful in forecasting volatility in the stock market.The method, which also considers the "unusualness" of news, may help anticipate stress in the financial system. 16-04) This working paper examines how a bailout orchestrated by New York Clearinghouse member banks stopped financial contagion during the Panic of 1884.Tests of the model against actual bank failures before, during, and after the 2007-09 financial crisis suggest that the market has become more resilient to asset write-downs and liquidity shocks. This risk emerges through the inability of CDS counterparties to make payments during systemic stress. bank holding companies now borrow less in the repo market overall after the change, but a larger percentage of the borrowing is backed by more risky collateral. 16-11) This paper assesses the likelihood of European government support in distressed banks.The model uses balance sheet data from more than 6,600 U. The authors find that the central counterparty contributes significantly less to network contagion than do several peripheral firms that are large net sellers of CDS protection. 16-12) This paper examines how risk-taking in the repurchase agreement, or repo, market changed after regulators introduced the supplementary leverage ratio for banks. To measure market expectations of these events, the authors study the credit spread between old credit default swap contracts and new ones with a definition of default linked to government intervention. 16-10) This working paper shows how network analysis can facilitate the monitoring of movements by stocks in the global financial system over time.The monitor, a heat map of 58 quantitative indicators, is a starting point for assessing vulnerabilities in the U. It finds that a CCP could be more vulnerable to failure than conventional stress tests have shown. 17-06) After the financial crisis, reforms of money market funds and changes to banks’ liquidity requirements had an unintended consequence of increased Federal Home Loan Banks’ reliance on short-term funding from money market funds to finance longer-term loans and other assets.This increase could make the financial system more vulnerable and pose risks to financial stability. 17-05) The 2007-09 financial crisis showed that stress in the financial system can have devastating effects on the economy.