The "Surprising" Origin and Nature of Financial Crises: A Macroeconomic Policy Proposal
by Ricardo J. Caballero and Pablo Kurlat
in Federal Reserve Bank of Kansas City Symposium, August 2009
The authors discuss three key ingredients for severe finanical crises in developed financial markets. Then they offer a policy proposal of tradable insurance credits to address a systemic crisis.
Bank Lending During the Financial Crisis of 2008
by Victoria Ivashina and David Scharfstein
in SSRN, December 2008
This paper documents that new loans to large borrowers fell by 37% during the peak period of the financial crisis (September-November 2008) relative to the prior three-month period and by 68% relative to the peak of the credit boom (Mar-May 2007). New lending for real investment (such as capital expenditures) fell to the same extent as new lendi...
The Commercial Paper Market, the Fed, and the 2007-2009 Financial Crisis
by Richard G. Anderson and Charles S. Gascon
in Federal Reserve Bank of St. Louis Review, November 2009
Since its inception in the early nineteenth century, the U.S. commercial paper market has grown to become a key source of short-term funding for major businesses, with issuance averaging over $100 billion per day. In the fall of 2008, the commercial paper market achieved national prominence when increasing market stress caused some to fear that,...
The Credit Crunch of 2007-2008: A Discussion of the Background, Market Reactions, and Policy Responses
by Paul Mizen
in Federal Reserve Bank of St. Louis Review, September 2008
This paper discusses the events surrounding the 2007-08 credit crunch. It highlights the period of exceptional macrostability, the global savings glut, and financial innovation in mortgage-backed securities as the precursors to the crisis. The credit crunch itself occurred when house prices fell and subprime mortgage defaults increased. These event...
The Crisis: Basic Mechanisms, and Appropriate Policies
by Olivier J. Blanchard
in IMF Working Ppaer, April 2009
The purpose of this lecture is to look beyond the complex events that characterize the global financial and economic crisis, identify the basic mechanisms, and infer the policies needed to resolve the current crisis, as well as the policies needed to reduce the probability of similar events in the future.
Deciphering the Liquidity and Credit Crunch 2007-08
by Markus K. Brunnermeier
in Journal of Economic Perspectives, November 2008
This paper summarizes and explains the main events of the liquidity and credit crunch in 2007-08. Starting with the trends leading up to the crisis, Brunnermeier explains how these events unfolded and how four different amplification mechanisms magnified losses in the mortgage market into large dislocations and turmoil in financial markets.
Economic Recovery and Balance Sheet Normalization
by Narayana R. Kocherlakota
in Federal Reserve Bank of Minneapolis, April 2010
Speech before the Minnesota Chamber of Commerce
The Economics of Bank Restructuring: Understanding the Options
by Augustin Landier and Kenichi Ueda
in IMF Staff Position Note, June 2009
Based on a simple framework, this note clarifies the economics behind bank restructuring and evaluates various restructuring options for systemically important banks. The note assumes that the government aims to reduce the probability of a bank’s default and keep the burden on taxpayers at a minimum. The note also acknowledges that the design of...
Factors Affecting Efforts to Limit Payments to AIG Counterparties
by Thomas C. Baxter Jr.
in Federal Reserve Bank of New York, February 2010
Testimony before the Committee on Government Oversight and Reform, U.S. House of Representatives
Facts and Myths about the Financial Crisis of 2008
by V. V. Chari, Lawrence Christiano and Patrick J. Kehoe
in Federal Reserve Bank of Minneapolis Working Paper, October 2008
This paper examines three claims about the way the financial crisis is affecting the economy as a whole and argues that all three claims are myths. It also presents three underappreciated facts about how the financial system intermediates funds between households and corporate businesses.
The Federal Reserve Bank of New York's Involvement with AIG
by Thomas C. Baxter and Sarah J. Dahlgren
in Federal Reserve Bank of New York, May 2010
Joint written testimony of Thomas C. Baxter and Sarah Dahlgren before the Congressional Oversight Panel, Washington, D.C.
The Federal Reserve's Balance Sheet
by Ben S. Bernanke
in Speech, April 2009
The Federal Reserve has taken a number of aggressive and creative policy actions, many of which are reflected in the size and composition of the Fed's balance sheet. Bernanke provides a brief guided tour of the Federal Reserve's balance sheet as an instructive way to discuss the Fed's policy strategy and some related issues.
The Financial Crisis: Toward an Explanation and Policy Response
by Aaron Steelman and John A.Weinberg
in Federal Reserve Bank of Richmond Annual Report 2008, April 2009
The essay is divided into the four sections. First, what has happened in the financial markets. Second, why those events took place. Third, possible market imperfections that could produce turmoil in the financial markets and an assessment of the role they have played in this case. And, fourth, how policymakers should respond in these difficult and...
Financial Turmoil and the Economy
by Frederick Furlong and Simon Kwan
in Federal Reserve Bank of San Francisco Annual Report 2008, May 2009
An overview of the financial crisis.
The Global Recession
by Craig P. Aubuchon and David C. Wheelock
in Federal Reserve Bank of St. Louis Economic Synopses, May 2009
Presents information on the percentage of economies around the world that are in recession, and offers comparisons with previous economic declines.
The Global Roots of the Current Financial Crisis and its Implications for Regulations
by Anil K. Kashyap, Raghuram Rajan and Jeremy Stein
in 5th ECB Central Banking Conference, November 2008
Where did the current financial crisis come from? Who or what is to blame? How will it be resolved? How do we undertake reforms for the future? These are the questions this paper will seek to answer. The analysis will have three parts. The first is a rough and ready sketch of the global roots of this crisis. Second, the authors focus in a more d...
Interest on Excess Reserves as a Monetary Policy Instrument: The Experience of Foreign Central Banks
by David Bowman, Etienne Gagnon, and Mike Leahy
in Board of Governors International Finance Discussion Papers, March 2010
This paper reviews the experience of eight major foreign central banks with policy interest rates comparable to the interest rate on excess reserves paid by the Federal Reserve. We pursue two main lines of inquiry: 1) To what extent have these policy interest rates been lower bounds for short-term market rates, and 2) to what extent has tighteni...
Lending Standards in Mortgage Markets
by Carlos Garriga,
in Federal Reserve Bank of St. Louis Economic Synopses, May 2009
Examines the mortgage denial rates by loan type as an indicator of loose lending standards.
Lessons Learned from the Financial Crisis
by William C. Dudley
in Speech, June 2009
In assessing the lessons of the past two years, Dudley focuses on five broad themes that are interrelated: Interconnectedness of the financial system; System dynamics—How does the system respond to shocks?; Incentives—Can we improve outcomes by changing incentives?; Transparency; How should central banks respond to asset bubbles?
Liquidity Risk, Credit Risk, and the Federal Reserve’s Responses to the Crisis
by Asani Sarkar
in Federal Reserve Bank of New York Staff Reports, September 2009
In responding to the severity and broad scope of the financial crisis that began in 2007, the Federal Reserve has made aggressive use of both traditional monetary policy instruments and innovative tools in an effort to provide liquidity. In this paper, the author examines the Fed’s actions in light of the underlying financial amplification mechanis...
Looking Behind the Aggregates: A Reply to "Facts and Myths about the Financial Crisis of 2008"
by Ethan Cohen-Cole, Burcu Duygan-Bump, Jose Fillat and Judit Montoriol-Garriga
in Federal Reserve Bank of Boston Working Paper, November 2008
In reply to the FRB of Minneapolis article by Chari et al. (2008) the authors of this paper argue that to evaluate the four common claims about the impact of financial sector phenomena on the economy, (which the FRB Boston authors conclude are all myths), one needs to look at the underlying composition of financial aggregates. This article find ...
A Minsky Meltdown: Lessons for Central Bankers
by Janet Yellen
in FRBSF Economic Letter, May 2009
In this essay, Federal Reserve Bank of San Francisco President Yellen reconsiders the notion of a 'Minsky Meltdown' and suggests that it is time to reconsider the notion that a central bank can not intervene in bubbles. Yellen also outlines her thoughts on supervisory and regulatory policies going forward, and the importance of varying capital req...
Overview: Global Financial Crisis Spurs Unprecedented Policy Actions
by Ingo Fender and Jacob Gyntelberg
in BIS Quarterly Review, December 2008
A four-stage overview of the crisis. Market developments over the period under review went through four more or less distinct stages. Stage one, which led into the Lehman bankruptcy in mid-September, was marked by the takeover of two major US housing finance agencies by the authorities in the United States. Stage two encompassed the immediate impl...
The Panic of 2007
by Gary B. Gorton
in Federal Reserve Bank of Kansas City's Symposium: Maintaining Stability in a Changing Financial System, October 2008
How did problems with subprime mortgages result in a systemic crisis, a panic? The ongoing Panic of 2007 is due to a loss of information about the location and size of risks of loss due to default on a number of interlinked securities, special purpose vehicles, and derivatives, all related to subprime mortgages. Subprime mortgages are a financial...
Preparing for a Smooth (Eventual) Exit
by Brian P. Sack
in Federal Reseve Bank of New York, March 2010
Remarks at the National Association for Business Economics Policy Conference, Arlington, Virginia
Putting the Financial Crisis and Lending Activity in a Broader Context
by Kevin L. Kliesen
in Federal Reserve Bank of St. Louis Economic Synopses, February 2009
This paper discusses how banks typically tighten credit standards and/or loan terms as the economy weakens and nonperforming loans increase. But an adverse shock from outside the financial sector can be just as important—such as a sharp increase in oil prices or a plunge in house prices.
The Response of the Federal Reserve to the Recent Banking and Financial Crisis
by Randall S. Kroszner and William Melick
in Chicago Booth School of Business Working Paper, December 2009
The authors present an account of the policy actions taken by the Fed, providing a narrative that brings together information that otherwise requires consulting a variety of sources. They also present a framework for thinking about the central bank policy response that gives the reader a means of organizing her own understanding of the response. A...
The Role of Liquidity in Financial Crises
by Franklin Allen and Elena Carletti
in Federal Reserve Bank of Kansas City's Symposium: Maintaining Stability in a Changing Financial System, September 2008
The purpose of this paper is to use insights from the academic literature on crises to understand the role of liquidity in the current crisis. Allen and Carletti focus on four of the crucial features of the crisis that they argue are related to liquidity provision. The first is the fall of the prices of AAA-rated tranches of securitized products be...
Speculative Bubbles and Financial Crisis
by Pengfei Wang and Yi Wen
in Federal Reserve Bank of St. Louis Working Paper, July 2009
Why are asset prices so much more volatile and so often detached from their fundamental values? Why does the bursting of financial bubbles depress the real economy? This paper addresses these questions by constructing an in?nite-horizon heterogeneous agent general equilibrium model with speculative bubbles. We characterize conditions under which st...
The Supervisory Capital Assessment Program--One Year Later
by Ben S. Bernanke
in Speech, May 2010
At the Federal Reserve Bank of Chicago 46th Annual Conference on Bank Structure and Competition, Chicago, Illinois
The Taylor Rule and the Practice of Central Banking
by Pier Francesco Asso, George A. Kahn, and Robert Leeson
in Federal Reserve Bank of Kansas City Working Paper, February 2010
The Taylor rule has revolutionized the way many policymakers at central banks think about monetary policy. It has framed policy actions as a systematic response to incoming information about economic conditions, as opposed to a period-by-period optimization problem. It has emphasized the importance of adjusting policy rates more than one-for-one in...
Toward an Effective Resolution Regime for Large Financial Institutions
by Daniel K. Tarullo
in Board of Governors Speech, March 2010
At the Symposium on Building the Financial System of the 21st Century, Armonk, New York
A powerpoint slideshow describing the subprime mortgage meltdown and how it relates to the overall financial crisis. Updated September 2009