Social and Behavioral Sciences Commons^™

Indonesia: Blanket Guarantee, 1998, Ayodeji George

Journal of Financial Crises

The Indonesian government closed 16 banks on November 1, 1997. At the time, the government said it would guarantee depositors up to 20 million Indonesian rupiah (IDR; USD 6,000) per account. The lack of immediate full protection for large depositors caused deposit runs throughout the banking sector and undermined foreign confidence in the Indonesian financial system. In response, the Indonesian president on January 26, 1998, announced a blanket guarantee and created the Indonesian Bank Restructuring Agency (IBRA) to administer the guarantee and other bank rehabilitation efforts. The blanket guarantee covered all depositors and nonsubordinated creditors in locally incorporated commercial banks. …

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 …

Finland: Government Guarantee Fund, Blanket Guarantee, 1992, Anmol Makhija

Journal of Financial Crises

Following a period of rapid financial liberalization and a record credit boom in the 1980s, Finland’s financial system suffered steadily increasing loan losses and falling earnings beginning in 1990. The Finnish Parliament created the Government Guarantee Fund (GGF) in April 1992 to support banks with loans, capital, and guarantees. In a press release issued on August 6, 1992, the government said the GGF would “secure the stable functioning of the banking system under any circumstances [emphasis added]”. Six months later, the Parliament of Finland specifically required the GGF to guarantee that all Finnish banks could meet their commitments. The government …

Denmark: General Guarantee Scheme, 2008, Benjamin Hoffner

Journal of Financial Crises

As foreign credit in Denmark dried up during the summer of 2008, Danish banks became increasingly reliant on short-term borrowing. The government took over the failing Roskilde Bank, the country’s eighth-largest bank, in late August. On October 5, 2008, the government announced a voluntary General Guarantee Scheme to fully insure deposits and other senior liabilities of participating banks. Banks could participate in the scheme by becoming members of the financial sector’s banking consortium, Det Private Beredskab, or in English, the Private Contingency Association (PCA), before October 13, 2008. The General Guarantee Scheme fully insured all depositors and senior unsecured creditors …

Blanket Guarantees Survey, Christian M. Mcnamara, Carey K. Mott, Greg Feldberg, Andrew Metrick

Journal of Financial Crises

This paper surveys 10 blanket guarantee (BG) programs across 13 Key Design Decisions. The defining characteristics of these programs in terms of their inclusion in our BG series are (a) that they guaranteed a broader range of liabilities beyond deposit accounts and (b) that the guarantees covered existing liabilities in addition to newly issued ones. Each case represents an effort to eliminate creditors’ incentive to withdraw funding from institutions by guaranteeing that the funding will be paid back even if the institutions are unable to do so themselves. The main themes that emerge are: (a) the inability of blanket guarantees …

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 …

Fire Sales, The Lolr, And Bank Runs With Continuous Asset Liquidity, Ulrich Bindseil, Edoardo Lanari

Journal of Financial Crises

Banks’ asset fire sales and recourse to central bank credit are modeled with continuous asset liquidity, allowing us to derive the liability structure of a bank. Both asset sales liquidity and the central bank collateral framework are modeled as power functions within the unit interval. Funding stability is captured as a strategic bank run game in pure strategies between depositors. Fire sale liquidity and the central bank collateral framework determine jointly the ability of the banking system to deliver maturity transformation without endangering financial stability. The model also explains why banks tend to use the least liquid eligible collateral with …

The Federal Reserve System: Diversity And Governance, Kaleb Nygaard, Peter Conti-Brown

Journal of Financial Crises

A growing chorus has called on the Federal Reserve System to diversify its ranks at all levels to reflect better the heterogeneity of the United States. So far, most of these efforts speak to the diversity of the Fed’s principals, namely, the members of the Fed’s Board of Governors and the presidents of the 12 Federal Reserve Banks, who together form the Federal Open Market Committee. In this study, we look instead at a vital part of Federal Reserve governance that has so far not received the same sustained attention: the directors of the Federal Reserve Banks, those private citizens …

The Financialization Of Recession Response, Aaron Klein

Journal of Financial Crises

This paper analyzes economic policy responses to the COVID-19-induced recession, focusing on the American policy response. Despite widespread political distrust between the two parties sharing control of the government and the timing of the upcoming presidential election, America’s political system was able to enact a massive policy response that reduced the severity of the recession. This political response happened faster than any automatic policy response would have, based on the delays in data reporting. The economic policies enacted continued America’s trend toward financialization of fiscal policy. The Federal Reserve and America’s private banking and financial systems were heavily relied upon …

Robust Inference On Correlation Under General Heterogeneity, Liudas Giraitis, Yugei Li, Peter C. B. Phillips

Cowles Foundation Discussion Papers

Considerable evidence in past research shows size distortion in standard tests for zero autocorrelation or cross-correlation when time series are not independent identically distributed random variables, pointing to the need for more robust procedures. Recent tests for serial correlation and cross-correlation in Dalla, Giraitis, and Phillips (2022) provide a more robust approach, allowing for heteroskedasticity and dependence in un-correlated data under restrictions that require a smooth, slowly-evolving deterministic heteroskedasticity process. The present work removes those restrictions and validates the robust testing methodology for a wider class of heteroskedastic time series models and innovations. The updated analysis given here enables more …

Heterogeneous Paths Of Industrialization, Federico Huneeus, Richard Rogerson

Cowles Foundation Discussion Papers

Industrialization experiences differ substantially across countries. We use a benchmark model of structural change to shed light on the sources of this heterogeneity and, in particular, the phenomenon of premature deindustrialization. Our analysis leads to three key findings. First, benchmark models of structural change robustly generate hump-shaped patterns for the evolution of the industrial sector. Second, heterogeneous patterns of catch-up in sectoral productivities across countries can generate variation in industrialization experiences similar to those found in the data, including premature deindustrialization. Third, differences in the rate of agricultural productivity growth across economies can account for the majority of the variation …

Marriage, Labor Supply And The Dynamics Of The Social Safety Net, Hamish Low, Costas Meghir, Luigi Pistaferri, Alessandra Voena

Cowles Foundation Discussion Papers

The 1996 US welfare reform introduced time limits on welfare receipt. We use quasi-experimental evidence and a lifecycle model of marriage, divorce, program participation, labor supply and savings to understand the impact of time limits on behavior and well-being. Time limits cause women to defer claiming in anticipation of future needs, an effect that depends on the probabilities of marriage and divorce. Time limits cost women 0.5% of life-time consumption, net of revenue savings redistributed by reduced taxation, with some groups affected much more. Expectations over future marital status are important determinants of the value of the social safety net.

Congregational Music As Phatic Communication: Affect, Atmosphere, And Relational Ways Of Listening And Being, Anna E. Nekola

Yale Journal of Music & Religion

Much of the scholarship of congregational music focuses on participatory music in organized corporate worship. This article draws on theories of communication and affect to examine the secondary, background music that happens alongside other events in a worship service or in places other than the space of the sanctuary. Instead of understanding affects as an individual emotion, this article argues that music is made meaningful through a socio-cultural and relational affective process. This in turn enables one to understand how musics, particularly secondary non-participatory musics, work beyond language and representation in phatic ways that can engender powerful feelings of human …

The Employment Effects Of Mobile Internet In Developing Countries, Gaurav Chiplunkar, Pinelopi K. Goldberg

Discussion Papers

We examine the employment effects of 3G mobile internet expansion in developing countries. We find that 3G significantly increases the labor force participation rate of women and the employment rates of both men and women. Our results suggest that 3G affects the type of jobs and there is a distinct gender dimension to these effects. Men transition away from unpaid agricultural work into operating small agricultural enterprises, while women take more unpaid jobs, especially in agriculture, and operate more small businesses in all sectors. Both men and women are more likely to work in wage jobs in the service sector.

More Roads Or Public Transit? Insights From Measuring City-Center Accessibility, Lucas Conwell, Fabian Eckert, Ahmed Mushfiq Mobarak

Discussion Papers

We propose a theory-inspired measure of the accessibility of a city’s center: the size of the surrounding area from which it can be reached within a specific time. Using publicly-available optimal routing software, we compute these ”accessibility zones” for the 109 largest American and European cities, separately for cars and public transit commutes. Compared to European cities, US cities are half as accessible via public transit and twice as accessible via cars. Car accessibility zones are always larger than public transit zones, making US cities more accessible overall. However, US cities’ car orientation comes at the cost of less green …

Unified Factor Model Estimation And Inference Under Short And Long Memory, Shuyao Ke, Peter C. B. Phillips, Liangjun Su

Cowles Foundation Discussion Papers

This paper studies a linear panel data model with interactive fixed effects wherein regressors, factors and idiosyncratic error terms are all stationary but with potential long memory. The setup involves a new factor model formulation for which weakly dependent regressors, factors and innovations are embedded as a special case. Standard methods based on principal component decomposition and least squares estimation, as in Bai (2009), are found to suffer bias correction failure because the order of magnitude of the bias is determined in a complex manner by the memory parameters. To cope with this failure and to provide a simple implementable …

Robust Testing For Explosive Behavior With Strongly Dependent Errors, Yiu Lim Lui, Peter C. B. Phillips, Jun Yu

Cowles Foundation Discussion Papers

A heteroskedasticity-autocorrelation robust (HAR) test statistic is proposed to test for the presence of explosive roots in financial or real asset prices when the equation errors are strongly dependent. Limit theory for the test statistic is developed and extended to heteroskedastic models. The new test has stable size properties unlike conventional test statistics that typically lead to size distortion and inconsistency in the presence of strongly dependent equation errors. The new procedure can be used to consistently time-stamp the origination and termination of an explosive episode under similar conditions of long memory errors. Simulations are conducted to assess the finite …

Rural-Urban Migration And The Re-Organization Of Agriculture, Raahil Madhok, Frederik Noack, Ahmed Mushfiq Mobarak, Olivier Deschenes

Discussion Papers

This paper studies the response of agricultural production to rural labor loss during the process of urbanization. Using household microdata from India and exogenous variation in migration induced by urban income shocks interacted with distance to cities, we document sharp declines in crop production among migrant-sending households residing near cities. Households with migration opportunities do not substitute agricultural labour with capital, nor do they adopt new agricultural machinery. Instead, they divest from agriculture altogether and cultivate less land. We use a two-sector general equilibrium model with crop and land markets to trace the ensuing spatial reorganization of agriculture. Other non-migrant …

Rural-Urban Migration And The Re-Organization Of Agriculture, Raahil Madhok, Frederik Noack, Ahmed Musfiq Mobarak, Olivier Deschenes

Cowles Foundation Discussion Papers

This paper studies the response of agricultural production to rural labor loss during the process of urbanization. Using household microdata from India and exogenous variation in migration induced by urban income shocks interacted with distance to cities, we document sharp declines in crop production among migrant-sending households residing near cities. Households with migration opportunities do not substitute agricultural labour with capital, nor do they adopt new agricultural machinery. Instead, they divest from agriculture altogether and cultivate less land. We use a two-sector general equilibrium model with crop and land markets to trace the ensuing spatial reorganization of agriculture. Other non-migrant …

Restrictions On Migration Create Gender Inequality: The Story Of China's Left-Behind Children, Xuwen Gao, Wenquan Liang, Ahmed Mushfiq Mobarak, Ran Song

Discussion Papers

About 11% of the Chinese population are rural-urban migrants, and the vast

majority of them (124 million people) possess a rural hukou which severely

restrict their children’s access to urban public schools. As a result, 61 million

children are left behind in rural areas. We use a regression-discontinuity

design based on school enrollment age cutoffs to document that migrants are

significantly more likely to leave middle-school-aged daughters behind in poor

rural areas without either parent present when schooling becomes expensive,

compared to middle-school-aged sons. The effect is larger when the daughter

has a male sibling. Migrant parents send significantly less …

Lessons Learned: Kevin Warsh, Matthew A. Lieber

Journal of Financial Crises

As senior deputy director of the Division of Supervision and Consumer Protection at the Federal Deposit Insurance Corporation (FDIC), Spoth led examinations, enforcement actions, problem bank remediations, and failure resolutions, among a range of responsibilities. During the Global Financial Crisis, he was on the front lines of fast-moving policy discussions and actions to help stabilize the financial system, and he oversaw the closure and restructuring of some of the nation’s largest banks. This abstract is based on an interview with Spoth on February 4, 2021.

Lessons Learned: Christopher Spoth, Sandra Ward

Journal of Financial Crises

As senior deputy director of the Division of Supervision and Consumer Protection at the Federal Deposit Insurance Corporation (FDIC), Spoth led examinations, enforcement actions, problem bank remediations, and failure resolutions, among a range of responsibilities. During the Global Financial Crisis, he was on the front lines of fast-moving policy discussions and actions to help stabilize the financial system, and he oversaw the closure and restructuring of some of the nation’s largest banks. This abstract is based on an interview with Spoth on February 4, 2021.

Lessons Learned: Brian Sack, Sandra Ward

Journal of Financial Crises

Charged with overseeing the implementation of the asset-purchase programs and liquidity facilities in his roles as executive vice president of the Markets Group and manager of the System Open Market Account at the Federal Reserve Bank of New York (FRBNY), Brian Sack played a critical role in keeping markets functioning during the years 2009–2012. He served as an adviser to top policymakers, and, in addition to implementing the various programs designed to stabilize financial conditions, he monitored their impact and measured their performance. This Lessons Learned summary is based on an interview with Sack on November 13, 2020.

Lessons Learned: Nathan Sheets, Yasemin Sim Esmen, Rosalind Z. Wiggins

Journal of Financial Crises

Between 2007 and 2011, Nathan Sheets was director of the Division of International Finance at the Board of Governors of the Federal Reserve System. He oversaw the operations of the division and advised the Federal Open Market Committee (FOMC) on economic and financial developments in foreign countries. Sheets also regularly represented the Federal Reserve Board at international meetings and in its contacts with foreign central banks. Under his helm, the division was involved in helping establish and manage the US dollar liquidity swap lines with foreign central banks. This Lessons Learned abstract is based on an interview with Sheets on …

Lessons Learned: Frederic Mishkin, Matthew A. Lieber

Journal of Financial Crises

Rick Mishkin served as a member of the Board of Governors of the Federal Reserve System from 2006 to 2008 and as director of research at the Federal Reserve Bank of New York from 1994 to 1997. A leading expert on monetary economics and financial markets and a professor at Columbia University’s School of Business since 1983, Mishkin has written 20 books, including the textbook The Economics of Money, Banking, and Financial Markets. This Lessons Learned is based on an interview with Mishkin conducted on October 20, 2020.

Lessons Learned: Susan Mclaughlin, Matthew A. Lieber

Journal of Financial Crises

A veteran staff member of the Federal Reserve Bank of New York (FRBNY), Susan McLaughlin served as head of the discount window and chief operating officer of the FRBNY’s Markets Trading Desk during the Global Financial Crisis. She was centrally involved in the Fed’s policy response to the disruptions to secured and unsecured funding markets during 2007–2008. Following the crisis, McLaughlin coordinated an effective Fed initiative to reform the triparty repurchase agreement (repo) market’s settlement infrastructure. The Fed’s reform efforts, engaging the financial industry under FRBNY president Bill Dudley, were instrumental in im-proving the stability of the funding market. This …

Lessons Learned: Simon Potter, Maryann Haggerty

Journal of Financial Crises

Simon Potter, an economist, worked at the Federal Reserve Bank of New York for more than two decades. Leading up to the Global Financial Crisis, he was the New York Fed’s associate director of economic research; in 2010, he became director. In 2012, he shifted to become the head of the markets group, putting him at the helm of the Fed’s open markets operations, the mechanism by which the central bank steers monetary policy and interest rates. He moved to the private sector in 2019. For this April 2021 Lessons Learned interview, he emphasized that these are his personal opinions, …

Lessons Learned: Kieran J. Fallon, Matthew A. Lieber

Journal of Financial Crises

Presently the senior deputy general counsel for regulation and government affairs at PNC Fi-nancial Services Group, Kieran Fallon completed a 16-year tenure in the legal division of the Board of Governors of the Federal Reserve System in 2011. As associate general counsel dur-ing the Global Financial Crisis (GFC), he helped design the Federal Reserve’s Commercial Pa-per Funding Facility, restructure American International Group (AIG), and implement the Dodd-Frank Act. Relatedly, Fallon also served as general counsel for the Financial Stability Oversight Board from 2008 to 2011. This Lessons Learned is based on an interview conducted with Fallon on August 13, 2020.

Lessons Learned: Steven B. Kamin, Yasemin Sim Esmen

Journal of Financial Crises

Steven B. Kamin was the deputy director of the division of international finance at the Federal Reserve Board during the Global Financial Crisis (GFC) and was appointed director in 2011. He was responsible for research, policy analysis, and reporting in the areas of foreign economic activity, US external trade and capital flows, and developments in international financial markets and institutions. This Lessons Learned is based on an interview conducted with Kamin on August 16, 2019.

Lessons Learned: Seth Carpenter, Maryann Haggerty

Journal of Financial Crises

Seth Carpenter was a senior staff member of the Division of Monetary Affairs at the Federal Reserve Board during the 2007–09 Global Financial Crisis (GFC), meaning he was part of the team that advised the Board of Governors and members of the Federal Open Market Committee (FOMC) in setting monetary policy. He led the Board team that worked daily with the Open Market Trading Desk at the Federal Reserve Bank of New York to implement policy. He left the Federal Reserve System as deputy director of monetary affairs in 2014 to work at the US Department of the Treasury, where …