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.

Is the Corporate Loan Market Globally Integrated? A Pricing Puzzle

Abstract: We offer evidence that interest rate spreads on syndicated loans to corporate borrowers are economically significantly smaller in Europe than in the United States, other things equal. Differences in borrower, loan, and lender characteristics do not appear to explain this phenomenon. Borrowers overwhelmingly issue in their natural home market and bank portfolios display home bias. This may explain why pricing discrepancies are not competed away, though their causes remain a puzzle. Thus, important determinants of loan origination market outcomes remain to be identified, home bias appears to be material for pricing, and corporate financing costs differ across Europe and the United States. WE OFFER EVIDENCE THAT PRICES OF SYNDICATED corporate loans differ between the European and U.S. markets, with interest rate spreads smaller in Europe by about 30 basis points (bps) on average over the past decade, after controlling for risk and other factors. The differences are economically and statistically significant. Levels of differences are larger for riskier borrowers, but spreads in the European market are roughly 20% less than for comparable loans in the United States across the risk spectrum. We cannot reject the hypothesis that price differences are as large today as they were a decade ago. We control for a host of factors known (or thought) to affect corporate debt decisions and pricing. Although many controls are correlated with levels of spreads, they have little effect on the price difference across markets. Such a material difference in pricing can persist only if lenders and borrowers fail to compete it away. Though we focus on pricing, we provide some evidence about the location of borrowers’ and lenders’ activity. The data show that borrowers stay home when they can and that they tend to issue in Europe when they must issue abroad. Specifically, borrowers domiciled in one of the major markets (Europe, United States, and Asia) almost always issue in that market, whereas borrowers domiciled elsewhere usually issue in Europe. Lenders cross ∗ Federal Reserve Board. This paper represents the authors’ opinions and not necessarily those of the Board of Governors, the Federal Reserve System, or other members of its staff. We thank the

The Joy of Giving or Assisted Living? Using Strategic Surveys to Separate Public Care Aversion from Bequest Motives

Abstract: The "annuity puzzle", conveying the apparently low interest of retirees in longevity insurance, is central to household finance. One possible explanation for low annuitization is ``public care aversion" (PCA), retiree aversion to simultaneously running out of wealth and being in need of long term care. Another possible explanation is an intentional bequest motive. To disentangle the relative importance of PCA and bequest motive, we estimate a structural model of the retirement phase using a novel survey instrument that includes hypothetical questions. We identify PCA as very significant and bequest motives that spread deep into the middle class. Our results highlight potential interest in annuities that make special allowance for long term care expenses.

Cross-Border Diversification in Bank Asset Portfolios*

Abstract: Taking the mean-variance portfolio model as a benchmark, we compute the optimally diversified portfolio for banks located in France, Germany, the U.K., and the U.S. under different assumptions about currency hedging. We compare these optimal portfolios to the actual cross-border assets of banks from 1995-1999 and try to explain the deviations. We find that banks over-invest domestically to a considerable extent and that cross-border diversification entails considerable gain. Banks underweight countries which are culturally less similar or have capital controls in place. Capital controls have a strong impact on the degree of underinvestment whereas less political risk increases the degree of over-investment.

Learning by Observing: Information Spillovers in the Execution and Valuation of Commercial Bank M&As

Abstract: We offer a new explanation for why academic studies typically fail to find value creation in bank mergers. Our conjectures are predicated on the idea that, until recently, large bank acquisitions were a new phenomenon, with no best practices history to inform bank managers or market investors. We hypothesize that merging banks, and investors pricing bank mergers, learn by observing information that spills over from previous bank mergers. We find evidence consistent with these conjectures for 216 M&As of large, publicly traded U.S. commercial banks between 1987 and 1999. Our findings are consistent with semistrong stock market efficiency.