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97 result(s)

Constrained Efficiency with Adverse Selection and Directed Search

Staff Working Paper 2017-15 Mohammad Davoodalhosseini
Constrained efficient allocation (CE) is characterized in a model of adverse selection and directed search (Guerrieri, Shimer, and Wright (2010)). CE is defined to be the allocation that maximizes welfare, the ex-ante utility of all agents, subject to the frictions of the environment.

Banking Regulation and Market Making

Staff Working Paper 2017-7 David Cimon, Corey Garriott
We model how securities dealers respond to regulations on leverage, position and liquidity such as those imposed by the Basel III framework. We show that while asset prices exhibit greater price impact, bid-ask spreads do not change and trading volumes may even increase.

Optimal Capital Regulation

Staff Working Paper 2017-6 Stéphane Moyen, Josef Schroth
We study constrained-efficient bank capital regulation in a model with market-imposed equity requirements. Banks hold equity buffers to insure against sudden loss of access to funding. However, in the model, banks choose to only partially self-insure because equity is privately costly.

Non-Bank Investors and Loan Renegotiations

Staff Working Paper 2016-60 Teodora Paligorova, João Santos
We document that the structure of syndicates affects loan renegotiations. Lead banks with large retained shares have positive effects on renegotiations. In contrast, more diverse syndicates deter renegotiations, but only for credit lines.

Options Decimalization

Staff Working Paper 2016-57 Faith Chin, Corey Garriott
We document the outcome of an options decimalization pilot on Canada’s derivatives exchange. Decimalization improves measures of liquidity and price efficiency. The impact differs by the moneyness of an option and is greatest for out-of-the-money options.

Bank Screening Heterogeneity

Staff Working Paper 2016-56 Thibaut Duprey
Production efficiency and financial stability do not necessarily go hand in hand. With heterogeneity in banks’ abilities to screen borrowers, the market for loans becomes segmented and a self-competition mechanism arises. When heterogeneity increases, the intensive and extensive margins have opposite effects.

Supervising Financial Regulators

Staff Working Paper 2016-52 Josef Schroth
How much discretion should local financial regulators in a banking union have in accommodating local credit demand? I analyze this question in an economy where local regulators privately observe expected output from high lending. They do not fully internalize default costs from high lending since deposit insurance cannot be priced fairly.

Managing Risk Taking with Interest Rate Policy and Macroprudential Regulations

Staff Working Paper 2016-47 Simona Cociuba, Malik Shukayev, Alexander Ueberfeldt
We develop a model in which a financial intermediary’s investment in risky assets—risk taking—is excessive due to limited liability and deposit insurance and characterize the policy tools that implement efficient risk taking.

Fragility of Resale Markets for Securitized Assets and Policy of Asset Purchases

Staff Working Paper 2016-46 Martin Kuncl
Markets for securitized assets were characterized by high liquidity prior to the recent financial crisis and by a sudden market dry-up at the onset of the crisis. A general equilibrium model with heterogeneous investment opportunities and information frictions predicts that, in boom periods or mild recessions, the degree of adverse selection in resale markets for securitized assets is limited because of the reputation-based guarantees by asset originators.

The Impact of Macroprudential Housing Finance Tools in Canada: 2005–10

Staff Working Paper 2016-41 Jason Allen, Timothy Grieder, Brian Peterson, Tom Roberts
This paper combines loan-level administrative data with household-level survey data to analyze the impact of recent macroprudential policy changes in Canada using a microsimulation model of mortgage demand of first-time homebuyers.
Content Type(s): Staff research, Staff working papers Research Topic(s): Financial system regulation and policies JEL Code(s): C, C6, C63, D, D1, D14, G, G2, G28
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