Social and Behavioral Sciences Commons^™

Analyzing The Effects Of 2018 Bank Reclassifications On Individual Balance Sheet Compositions, Hiyab Abraha

CMC Senior Theses

The March 2023 collapse of Silicon Valley Bank (SVB) marked the second largest bank failure in United States history and the largest bank failure since the 2008 Global Financial Crisis (GFC). This paper analyzes the mechanisms underlying SVB’s downfall and explores the specific systemic vulnerabilities that March 2023 revealed. To study the impact of systemic risk reclassification on individual bank balance sheets, I construct a quarterly panel dataset of the largest US chartered banks and track their regulatory classification and financial reports from 2009 to 2023. The 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) changed the Federal …

Striving Toward Bitcoin Price Stability: Second-Layer Money And The Case For Real Bills, Scrip & Notes, Eduardo Blasco, Carlos García De Enterría

Journal of New Finance

Monetary systems comprise various layers of real and financial assets arranged hierarchically. Due to its properties, Bitcoin is a suitable asset to become the base money of a monetary system once its price has stabilized and people see it more like a medium of exchange than an investment. We review Bitcoin’s characteristics and explain their effect on its intra- and inter-temporal liquidity. We argue that Bitcoin will lower its bid-ask spread once users adopt financial assets convertible to Bitcoin. We propose the use of three financial assets working as Bitcoin derivatives to reduce Bitcoin’s demand shocks and lower its volatility: …

Search Models Of Money: Alternative Means-Of Payment And Consumer Behaviour With Credit, Kheng Tat Marcus Tan

Dissertations and Theses Collection (Open Access)

This dissertation consists of three chapters on Search Models of Money.

The first chapter is a review of recent advances in Search Models of Money. It reviews the Lagos and Wright (2005) framework which is the workhorse of many modern search models with applications to models with Competing Media of Exchange to Fiat Currency, and models with Money and Credit. We trace the history of the development of search models of money from the first generation to present day. We highlight recent developments that address puzzles such as the coexistence of money in an environment where an asset serves as …

Korea: Blanket Guarantee, 1997, Bailey Decker

Journal of Financial Crises

Korea entered the Asian Financial Crisis in August 1997 with highly leveraged firms and a banking system inexperienced in managing systemic risk. Korea faced a currency crisis and a banking crisis, as foreign banks froze credit to Korean commercial banks and merchant banks. On August 25, 1997, the Ministry of Economy and Finance (MOEF) announced that it would guarantee all Korean financial institutions’ foreign debt—both existing debt and new borrowings. Nonetheless, foreign lenders continued to withdraw credit from Korean financial institutions. On November 19, 1997, a newly appointed MOEF minister announced a suite of measures to promote foreign creditors’ confidence …

Ecuador: Blanket Guarantee, 1998, Bailey Decker

Journal of Financial Crises

After a series of exogenous shocks hit the Ecuadorian economy in 1997–1998, foreign creditors reassessed their emerging-market risk and reduced external credit lines to Ecuador, thus draining liquidity. The closure of a small bank called Solbanco in April 1998 triggered deposit runs at other banks. Banks sought assistance from the Central Bank of Ecuador (Banco Central del Ecuador, or BCE). By the end of September 1998, the BCE had issued emergency loans to 11 financial institutions, totaling nearly 30% of the money base. The crisis accelerated in August 1998 when Banco de Prestamos, the sixth-largest bank, was closed; the existing …

Reserve Requirements Survey, June Rhee, Carey K. Mott, Greg Feldberg, Andrew Metrick

Journal of Financial Crises

Banks have a private motive to hold some level of cash and liquid reserves, but the negative externalities of bank runs create a public interest in setting a regulatory level higher than the privately optimal level. We can think of such reserve requirements (RRs) as the original form of liquidity regulation. In this paper, we focus on 14 cases in which central banks adjusted RRs after crises hit, typically to deal with liquidity shortages in the banking system. We observe that RR adjustments have several advantages in a crisis: (1) such changes require little process, and the change for banks …

Development Of The Payment Systems: An Economic Need Or A Technological Deed, Heba Mekawy

Future Journal of Social Science

This paper is mainly concerned with showing most of the economic aspects related to both banking transactions, payments, and eventually the payment systems and their development. The economic aspects are discussed on both the macroeconomic and the microeconomic one as well. The discussion in the paper also covers the economic implications of the payment systems and the economic rationale behind their development. The paper has concluded that the economic need of the financial market is the main driver behind the development of payment systems. They also serve as outcomes concerning the well-functioning of the financial market. Thus, the technological development …

A First Peek At Firms’ Cash Flow Dynamics In The Pandemic Year: A Lesson Learned?, Ana Oblak

Economic and Business Review

Using a comprehensive database of financial data and data on public support, we aim at documenting the actual (and not predicted) effects of the Covid-19 pandemic on firms’ liquidity. A drain of the non-financial corporations’ liquidity was unprecedented and highly asymmetric across sectors. A simple descriptive analysis enables us to evaluate (partially) the effectiveness of support measures and to provide insights on how well-targeted support measures were from the sectoral perspective. Acting in concert, the governments and the European Union (EU) institutions concerned seem to succeed in preventing massive illiquidity (for now). Crisis measures were targeted mostly at firms with …

Nomadland: The New Frontiers Of The American Dream At The Periphery Of The Market, Aleksandrina Atanasova, Giana Eckhardt

Markets, Globalization & Development Review

This Dialogue contribution is based around the film Nomadland, which won five Oscars, including Best Film, Best Director, and Best Actress. Nomadland, a captivating ode to resisting market logics of accumulation, delivers a gripping image of what life looks like in the absence of possessions. Navigating between the extremes of lack and social displacement, and community and newfound ability to live life with little, the nomads find ways to live in the face of despair and disenchantment. Nomadland is a critique of the death of the American dream while at the same time a story of solidarity amongst the dispossessed.

The Rescue Of Fannie Mae And Freddie Mac – Module E: The Housing And Economic Recovery Act Of 2008, Daniel Thompson

Journal of Financial Crises

As the U.S. housing crisis worsened in 2007, and through 2008, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) headed towards insolvency. At the same time, contractions in private securitization resulted in these two government-sponsored enterprises (GSEs) purchasing nearly half of all new mortgages. In July, the government passed the Housing and Economic Recovery Act of 2008 (HERA) to provide a more effective regulator and to address public uncertainty regarding whether the government would back the GSEs’ assets and liabilities. HERA provided Treasury and the newly formed Federal Housing Finance Agency (FHFA) …

The Rescue Of Fannie Mae And Freddie Mac – Module C: Gse Credit Facility, Emily Vergara

Journal of Financial Crises

In 2007 and 2008, the collapse of the subprime mortgage market and the deterioration of the housing market more generally precipitated a crisis at the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), which together held or guaranteed $5.3 trillion in mortgage assets. Over the course of two years, both entities suffered high losses and saw their liquidity positions deteriorate as the market perceived their rapid decline. On September 6, 2008, the Federal Housing Finance Agency (FHFA), pursuant to the authority of the Housing and Economic Recovery Act (HERA) of 2008, took Fannie …

The Rescue Of American International Group Module Z: Overview, Rosalind Z. Wiggins, Aidan Lawson, Steven Kelly, Lily S. Engbith, Andrew Metrick

Journal of Financial Crises

In September 2008, in the midst of the broader financial crisis, the Federal Reserve Board of Governors used its emergency authority under Section 13(3) of the Federal Reserve Act to authorize the largest loan in its history, a $85 billion collateralized credit line to American International Group (AIG), a $1 trillion insurance and financial company that was experiencing severe liquidity strains. In connection with the loan, the government received an equity interest representing 79.9% of the company’s ownership. AIG continued to experience a depressed stock price, asset devaluations, and the risk of ratings downgrades leading to questions about its solvency. …

Asset Classes, Nicolas L. Jacquet

Research Collection School Of Economics

This paper proposes a theory of endogenous differences in liquidity of assets based on the interaction between differences in the risk of assets and differences in liquidity needs of investors. An equilibrium of the model, which always exists and is unique, displays a class structure, where investors’ types sort themselves across different types of assets. I also provide a detailed analysis of the possible types of sorting and of the consequences for the cross-sectional properties of asset prices and their velocity. The framework can also be useful to think about what constitute a ""light-to-liquidity" and a "safe asset".

The Structure Of Production And Endogenous And Exogenous Liquidity Of Financial Intermediaries, Daniel Fernández

Journal of New Finance

Banks directly manage their own liquidity. Banks also indirectly manage the liquidity of the entire economic system. In this article we discuss the relationship between endogenous and exogenous bank liquidity, and their corresponding relationship to the structure of production. We explore these liquidity relationships in the context of both a decentralized and centralized system of free banking, comparing both with the monopoly regime of central banks, “convertible and inconvertible liabilities. We analyze the incentives that engender a liquid “system in the context of free banking as well as the perversion of those same incentives in the context of central banking, …

The Portuguese Guarantee Scheme (Portugal Gfc), Julia A. Arnous

Journal of Financial Crises

By October 2008, Portuguese banks’ access to liquidity was severely restricted due to strains in international wholesale markets. On October 12-13, 2008, the Portuguese government notified the European Commission of a guarantee scheme intended to promote solvent credit institutions’ access to liquidity as part of the European policy response to the acute financial crisis aiming to achieve and maintain financial stability. Under the scheme, the Portuguese government guaranteed financing agreements and banks’ issuance of non-subordinated short- and medium-term debt. To obtain a guarantee under the Scheme, banks paid a fee based on the maturity of the debt and a risk …

The Polish Guarantee Scheme (Poland Gfc), Manuel Leon Hoyos

Journal of Financial Crises

Faced with the global financial crisis of 2007–2009, Poland implemented a scheme of State support for financial institutions. In view of a potential global credit crunch, it aimed at improving short- and medium-term liquidity of domestic financial institutions. The scheme came into force on March 13, 2009, and was approved by the European Commission under European Union State Aid rules on September 25, 2009. The scheme enabled the Ministry of Finance, on behalf of the State Treasury, to provide support in the form of Treasury guarantees on newly issued bank debt and the exchange of Treasury bonds for less liquid …

Ireland's Credit Institutions (Eligible Liabilities Guarantee) Scheme (Ireland Gfc), Claire Simon

Journal of Financial Crises

Following the failure of Lehman Brothers in September 2008, Irish banks found themselves unable to roll over their significant foreign borrowings on the interbank lending market. With the banks facing a liquidity crisis, the Irish government decided to issue a blanket guarantee of all liabilities of six banks through the Credit Institutions Financial Support Scheme (CIFS). As the crisis worsened, and it became clear that Irish banks were facing a solvency—not just liquidity—crisis, the Irish government was forced to provide additional support to the financial system, which took the form of capital injections and a national asset management company for …

The United Kingdom's Corporate Bond Secondary Market Scheme (U.K. Gfc), Claire Simon

Journal of Financial Crises

In late 2008, at the height of the Global Financial Crisis, increased liquidity premia and risk aversion in the secondary market hindered companies’ ability to issue corporate bonds. In response, in January 2009, Her Majesty’s Treasury authorized the Bank of England to establish a facility to purchase commercial bonds through the Asset Purchase Facility. In March 2009, the Bank of England published details on the Corporate Bond Secondary Market Scheme, in conjunction with its quantitative easing program. Under the scheme, the Bank acted as a market maker of last resort in the secondary bond market, making regular purchases of a …

The United Kingdom's Commercial Paper Facility (U.K. Gfc), Claire Simon

Journal of Financial Crises

In January 2009, following continued increases in commercial paper spreads, Her Majesty’s Treasury authorized the Bank of England to begin purchasing commercial paper under the Asset Purchase Facility (APF) in order to maintain UK-based corporations’ access to short-term financing. Under the Commercial Paper Facility (CPF), the Bank purchased commercial paper from both primary issuers and secondary holders at a rate that was favorable to issuers during the credit crunch but that would no longer be attractive once the markets recovered. By serving as a backstop, or market maker of last resort (MMLR), the Bank helped to restore liquidity to corporate …

The Primary Dealer Credit Facility (Pdcf) (U.S. Gfc), Karen Yang

Journal of Financial Crises

On March 16, 2008, the Federal Reserve created the Primary Dealer Credit Facility, or PDCF, to provide overnight funding to primary dealers in the tri-party repurchase agreement (repo) market, where lenders had become increasingly risk averse. Loans were fully secured by (initially) investment-grade securities and offered at the primary credit rate by the Federal Reserve Bank of New York. The eligible collateral was significantly expanded in September 2008, after rumors of Lehman Brothers potentially filing for bankruptcy, to include all of the types of instruments that could be pledged at the two major tri-party repo clearing banks. The PDCF was …

The Federal Reserve’S Financial Crisis Response A: Lending & Credit Programs For Depository Institutions, Rosalind Z. Wiggins, Andrew Metrick

Journal of Financial Crises

Beginning in summer 2007, the Federal Reserve (the Fed) was called upon to address a severe disruption in the interbank lending markets sparked by a downturn in the subprime mortgage market. As these developments began to impact the ability of banks to raise adequate funding, the Fed encouraged them to utilize the Discount Window (DW), its standing facility for lending to depository institutions, and repeatedly decreased the lending rate to make the facility more accessible. Despite the Fed’s efforts, for a number of reasons, including historical perceptions of stigma, banks were reluctant to utilize the DW. In December 2007, the …

News-Driven Expectations And Volatility Clustering, Sabiou M. Inoua

ESI Publications

Financial volatility obeys two fascinating empirical regularities that apply to various assets, on various markets, and on various time scales: it is fat-tailed (more precisely power-law distributed) and it tends to be clustered in time. Many interesting models have been proposed to account for these regularities, notably agent-based models, which mimic the two empirical laws through a complex mix of nonlinear mechanisms such as traders switching between trading strategies in highly nonlinear way. This paper explains the two regularities simply in terms of traders’ attitudes towards news, an explanation that follows from the very traditional dichotomy of financial market participants, …

News-Driven Expectations And Volatility Clustering, Sabiou M. Inoua

ESI Working Papers

Financial volatility obeys two well-established empirical properties: it is fat-tailed (power-law distributed) and it tends to be clustered in time. Many interesting models have been proposed to account for these regularities, notably agent-based computational models, which typically invoke complicated mechanisms, however. It can be shown that trend-following speculation generates the power law in an intrinsic way. But this model cannot exaplain clustered volatility. This paper extends the model and offers a simple explanation for clustered volatility: the impact of exogenous news on traders’ expectations. Owing to the famous no-trade results, rational expectations, the dominant model of news-driven expectations, is hard …

Essays On Macroeconomic Analysis Of Development, Nazmul Islam

FIU Electronic Theses and Dissertations

This dissertation includes three essays on empirical studies of macroeconomic analysis of development. The first and second chapter focus on defining different categories of households based on the type of wealth they hold, deriving their demographic characteristics and how they react to transitory income shocks. The economics literature splits households into poor hand-to-mouth (P-HtM), wealthy hand-to-mouth (W-HtM), and not hand-to-mouth (N-HtM). This breakdown is important to accurately capture how different categories of households react to income shocks.

In Chapter 1, I argue that this classification is missing important features related to the behavior of indebted households. Thus, novel in the …

Tertiary Degrees And The Market: Cross-Country Statistical Evidence, Boontharika Meesuwan

Theses and Dissertations

Substantial differences in stock market behavior exists across the world. Many determinants have been explored and empirically studied, yet the exact reasons for these differences remain unclear. The purpose of this paper is to contribute some insight into the question of why market behavior differs across countries and between social groups despite continuing globalization within financial markets. I hypothesize that there is a direct relationship between personality and trading behavior that directly affects market liquidity.

Inefficient Liquidity Provision, John Geanakoplos, Kieran James Walsh

Cowles Foundation Discussion Papers

We prove that in competitive market economies with no insurance for idiosyncratic risks, agents will always overinvest in illiquid long term assets and underinvest in short term liquid assets. We take as our setting the seminal model of Diamond and Dybvig (1983), who first posed the question in a tractable model. We reach such a simple conclusion under mild conditions because we stick to the basic competitive market framework, avoiding the banks and intermediaries that Diamond and Dybvig and others introduced.

Essays In Market Structure And Liquidity, Adrian J. Walton

Electronic Thesis and Dissertation Repository

Market structure concerns the mechanisms for negotiating trades and the composition of trading participants, and can affect liquidity and price efficiency. More gains from trade can be realized from an asset that is more liquid, and a better allocation of risk and capital can be achieved when an asset’s price is more efficient so it is important to understand market structure. This thesis uses theory and empirical methods to examine the effects of a few specific aspects of market structure.

In Chapter 1, we study a novel market structure on the New York Stock Exchange (NYSE), the Retail Liqudity Program …

Simple Nonparametric Estimators For The Bid-Ask Spread In The Roll Model, Xiaohong Chen, Oliver B. Linton, Stefan Schneeberger

Cowles Foundation Discussion Papers

We propose new methods for estimating the bid-ask spread from observed transaction prices alone. Our methods are based on the empirical characteristic function instead of the sample autocovariance function like the method of Roll (1984). As in Roll (1984), we have a closed form expression for the spread, but this is only based on a limited amount of the model-implied identification restrictions. We also provide methods that take account of more identification information. We compare our methods theoretically and numerically with the Roll method as well as with its best known competitor, the Hasbrouck (2004) method, which uses a Bayesian …

Shadow Banking Services And Its Implications For The Nigerian Economy, Jibrin Yakubu, Joseph Achua

Bullion

This paper reviews some conceptual and theoretical issues as well as considers the implications of shadow banking services in the Nigerian economy. lt defines shadow 3banking services as 'a system of credit intermediation that involves entities and activities outside Central Bank of Nigeria's regulatory capture'. The paper noted that Nigeria is yet to make significant policy impact on shadow banking in spite of its inherent systemic risk and regulatory arbitrage concerns on the economy. ln addition, there is neither data collection nor information management frameworks to measure its size, performance and impact on the economy. The paper therefore, recommends the …

Liquidity, Market Depth, And Informed Trading, Roy Roth, Dr. Scott Condie

Journal of Undergraduate Research

Hidden limit orders have been increasingly important in asset markets over the past several years. These orders are hidden in the sense that they are not displayed or announced in any way until another order is sent to the market that trades with the hidden order. Traditionally, the two major order types in asset markets are market orders and limit orders. A market order contains instructions to buy or sell a given number of shares of a specific asset immediately at the best possible price, while a limit order signals a trader’s willingness to buy (sell) a certain number of …