Federal Reserve System

About: Federal Reserve System is a other organization based out in Washington D.C., District of Columbia, United States. It is known for research contribution in the topics: Monetary policy & Inflation. The organization has 2373 authors who have published 10301 publications receiving 511979 citations.

How important are small banks to small business lending

Abstract: Typically, small banks lend a larger proportion of their assets to small businesses than do large banks. The recent wave of bank mergers has thinned the ranks of small banks, raising the concern that small firms may find it difficult to access bank credit. However, bank consolidation will reduce small business credit only if small banks enjoy an advantage in lending to small businesses. We test the existence of a small bank cost advantage in small business lending by conducting the following simple test: If such advantages exist, then we should observe small businesses in areas with few small banks to have less bank credit. Using data on small business borrowers from the 1993 National Survey of Small Business Finance, we find that the probability of a small firm having a line of credit from a bank does not decrease in the long run when there are fewer small banks in the area, although short-run disruptions may occur. Nor do we find that firms in areas with few small banks are any more likely to repay trade credit late, suggesting that such firms are no more credit constrained than firms in areas with many small banks.

Credit-Market Sentiment and the Business Cycle

Abstract: Using U.S. data from 1929 to 2015, we show that elevated credit-market sentiment in year t-2 is associated with a decline in economic activity in years t and t+1. Underlying this result is the existence of predictable mean reversion in credit-market conditions. When credit risk is aggressively priced, spreads subsequently widen. The timing of this widening is, in turn, closely tied to the onset of a contraction in economic activity. Exploring the mechanism, we find that buoyant credit-market sentiment in year t-2 also forecasts a change in the composition of external finance: Net debt issuance falls in year t, while net equity issuance increases, consistent with the reversal in credit-market conditions leading to an inward shift in credit supply. Unlike much of the current literature on the role of financial frictions in macroeconomics, this paper suggests that investor sentiment in credit markets can be an important driver of economic fluctuations.

Monetary Policy, Housing, and Heterogeneous Regional Markets

Abstract: We quantify the importance of heterogeneity for monetary policy using a new heterogeneous-agent VAR (HAVAR) model that integrates national monetary/financial markets with regional housing markets via the mortgage rate. Although the HAVAR model has linear regional VARs, its aggregate impulse responses exhibit two nonlinearities: (1) time variation, stemming from aggregation over heterogeneous regions, and (2) state dependence on initial economic conditions in regions. Thus, monetary policy has “long and variable lags” because monetary transmission depends on the extent and nature of regional heterogeneity, which both vary over time. The model is estimated with data for U.S. regions from 1986 to 1996 and simulated to show how coastal housing booms might influence the efficacy of monetary policy.

Financial Crises and Bank Failures: A Review of Prediction Methods

Abstract: In this article we provide a summary of empirical results obtained in several economics and operations research papers that attempt to explain, predict, or suggest remedies for financial crises or banking defaults; we also outline the methodologies used in them. We analyze financial and economic circumstances associated with the US subprime mortgage crisis and the global financial turmoil that has led to severe crises in many countries. The intent of this article is to promote future empirical research for preventing bank failures and financial crises.

Does Bank Capital Matter for Monetary Transmission

Abstract: A paper presented at the April 2001 conference "Financial Innovation and Monetary Transmission," sponsored by the Federal Reserve Bank of New York.