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Research and Statistics Group

Two Research Series Examine Recent Changes
in Banking


n July, the Research Group published a special
volume of the Economic Policy Review (EPR)
and a companion series of Liberty Street
Economics blog posts on the evolution of
banking since the advent of asset securitization.
The project came out of discussions within the
Group about “shadow banks” and their role in the
2007-09 financial crisis. The consensus was that it is
no longer obvious what banks really do and to what
extent they are still central to the process of financial
intermediation. Getting a better underThe main finding standing of these issues is important from
of the studies an academic perspective, but the insights
is that financial gained from the exercise could also prove
intermediation is in useful in a practical sense for policymakers.
The main finding of the studies is
fact less “shadowy” that financial intermediation is in fact less
than originally “shadowy” than originally thought. Finanthought. cial intermediation has changed and grown
more complex, making it more difficult
to monitor and regulate. Yet when looked at closely,
regulated banks and bank holding companies (BHCs)
have been able to adapt and continue to provide
essential intermediation services.
After an introduction outlining the issues, the
EPR volume offers a survey of the regulatory and
policy decisions that have affected the institutions
and instruments of credit intermediation and
helped transform the role of banks in the process.
“Regulation’s Role in Bank Changes,” by Peter Olson,
suggests that government action—sometimes
unintentionally—has spurred the evolution of
financial intermediation.

The five articles that follow explore the idea of
bank adaptation in more depth, presenting arguments
and findings associated with the volume’s emphasis on
intermediation roles and changes in bank structure.
In “The Rise of the Originate-to-Distribute
Model and the Role of Banks in Financial Intermediation,” Vitaly Bord and João Santos show that banks
indeed play a much more important part in lending
than what the balance sheet suggests. Moreover, bank
actions have actually spurred the growth of shadow
banks involved in the subsequent steps of the credit
intermediation chain.
Benjamin Mandel, Donald Morgan, and
Chenyang Wei next analyze the importance of banks
in providing credit enhancements. Their study, “The
Role of Bank Credit Enhancements in Securitization,”
asks why credit enhancement is provided and what
functions it performs. The study suggests that the
act of buffering investors to reduce their credit risk

Also in this issue…
New report recommends ways to strengthen
Puerto Rico’s competitiveness����������������������������3
Study proposes a novel capital framework
for banks����������������������������������������������������������������4
Spotlighting our work on the web���������������������������5
Top blog posts of Q2�������������������������������������������������6
Most downloaded publications�������������������������������7
Papers recently published by Research
Group economists�����������������������������������������������7
Papers presented at conferences������������������������������8
Staff Reports: New titles������������������������������������������10
Publications and blog posts������������������������������������12

Research UPDATE n Number 2, 2012
sources, the study shows that while the number of
nonbank subsidiaries has increased significantly since
the 1990s, most of the structural expansion beyond
the traditional boundaries of commercial banking
has been limited to the largest organizations. This
development signifies the presence of important
economies of scale associated with
When looked at closely,
this form of adaptation.
regulated banks and
Adam Copeland concludes the
volume with his analysis of “Evolubank holding companies
tion and Heterogeneity among Larger
have been able to adapt
Bank Holding Companies: 1994 to
2010.” Copeland tracks the changing and continue to provide
activities of bank holding companies essential intermediation
by analyzing data on BHC income
streams. He shows that fee-based
income has grown in importance across the largest
BHCs, and that nonbank subsidiaries have become
a more prominent source of income for the larger
You can find the articles at
research/epr/2012.html; the blog posts are available
at libertystreetecono

exposure is the main motivation behind the provision
of credit enhancement in asset securitization. The
­authors corroborate the underlying view that banks
have played a fundamental role in supporting the
modern intermediation process.
Nicola Cetorelli and Stavros Peristiani, in “The
Role of Banks in Asset Securitization,” examine four
key roles in the credit intermediation chain: issuer,
underwriter, trustee, and servicer. They then take a
“bean-counting” approach to establish the extent to
which financial intermediation is now occurring “in
the shadow”—that is, outside the realm of banks and
the scrutiny of regulators. Their evidence suggests
that very little securitization-based intermediation is
actually in the shadow—much of it remains within
the scope of regulated bank entities.
The last two articles focus on the idea of bank
adaptation by looking at the organizational transformation of banks and the expanding role of BHCs. In
“A Structural View of U.S. Bank Holding Companies,”
Dafna Avraham, Patricia Selvaggi, and James Vickery
describe the organizational structure and history of
U.S. bank holding companies. Using a detailed data
set compiled from relatively obscure regulatory

federal reserve bank of new york

New Report Recommends Ways to Strengthen
Puerto Rico’s Competitiveness


hile Puerto Rico—part of the
Federal Reserve’s Second District—has shown signs of economic expansion, growth is not
occurring broadly enough. Many families, communities, and businesses there continue to face difficult
conditions. As part of its commitment to promote
community development in its District, the New
York Fed is working to help put the Island on a path
of robust, sustainable, and inclusive growth. A recent publication, “Report on the Competitiveness of
Puerto Rico’s Economy,” reflects that commitment.

The report was prepared at the request of business and community leaders in Puerto Rico to investigate impediments to economic growth and evaluate
ways to promote competitiveness
The report was prepared
and productivity. It identifies
at the request of business
important challenges facing Puerto
Rico, such as how to improve labor and community leaders in
market opportunities, develop
Puerto Rico to investigate
human capital, and reduce the
impediments to economic
costs of doing business. The report
growth and evaluate ways
also makes policy recommendations on ways to capitalize on the
to promote competitiveness
Island’s considerable strengths to
and productivity.
restore growth—for example, by
reducing barriers to job creation and labor force participation as well as fostering partnerships between
industry and higher education.
The report is available at


Research UPDATE n Number 2, 2012

Study Proposes a Novel Capital Framework
for Banks


the financial sector hurt by the failing institution, or
even to support affected parts of the household and
real sectors. Regulators could also save the capital as a
buffer against a future crisis.
The framework would discourage risk taking in
two ways. First, it would require banks to increase the
equity in their capital structure. Second, it would motivate creditors to monitor bank management more
closely, since they would be uninsured against losses
in the event of a bank collapse.
The authors suggest
The new capital framework
that their proposal would
yield a number of benefits. would consist of a core
It could bring more capital capital requirement . . .
into banking and thus
and a special capital
contribute to the safety and
account that banks would
soundness of the financial
create from earnings
sector without requiring
banks to issue new equity. retained by limiting
It could also boost bank
dividend payouts to
incentives to reduce the
probability of a crisis and
creditors’ incentives to impose discipline on banks.
Finally, the proposal relies on well-known instruments, such as equity and retained earnings, rather
than new instruments whose pricing characteristics
and market impact might be hard to gauge. n

	egulators could strengthen bank capital
structures by implementing a two-part
capital requirement designed to counter
banks’ incentives to take on excessive risk
and leverage, according to a recent article in Current
Issues in Economics and Finance (volume 18, no. 4,
“Robust Capital Regulation”).
As authors Viral Acharya, Hamid Mehran, Til
Schuermann, and
Anjan Thakor explain,
the new capital
framework would
consist of a core
capital requirement
(much like existing
requirements) and a
special capital account
that banks would
create from earnings Author Hamid Mehran of the
Federal Reserve Bank of New York’s
retained by limiting
Research and Statistics Group
dividend payouts to
shareholders. The earnings, invested in Treasury
securities or their equivalents, would belong to the
bank’s shareholders as long as the bank was solvent,
but would pass to regulators—rather than the bank’s
creditors—if the bank failed. In the latter event, regulators could use the securities to assist components of

federal reserve bank of new york

Spotlighting Our Work on the Web


n June, we introduced a web series, Research
Topics in Focus, to brief readers on work of
academic and public-policy interest. The first
article pulled together publications by our
economists on “The Dynamics of Housing Prices,”
including staff reports and Liberty Street Economics
blog posts by Andrew Haughwout, Donghoon Lee,
Joseph Tracy, Wilbert van der Klaauw, Marco
Cipriani, Andrea Ferrero, and Richard Peach.
The Research Topics series grew out of an
interview with Haughwout, in which he reviewed
the scope of New York Fed research on housing and
asset-price bubbles and highlighted insights that were
made possible with a relatively new data source, the
FRBNY Consumer Credit Panel (CCP). The interview
featured a key graphic from a recent study in our Staff
Reports series, “Real Estate Investors, the Leverage
Cycle, and the Housing Market Crisis,” revealing that
estimates of the share of speculative investors active
in the housing bubble made using CCP data were
sharply higher than the recognized share (see chart).
Haughwout commented on the significance of this
finding as well as on ways to advance the research.

Investor Share of Nonprime
Mortgage Borrowing

Our research indicates that the share of speculative buyers active in the
run-up in housing prices is much larger than previously understood.

United States

Measured using
new CCP data

Measured using
self-reported data


“Bubble” States

Measured using
new CCP data


Measured using
self-reported data









Source: FRBNY Consumer Credit Panel, 1 percent sample.

The Research Topics series will continue to
­offer insights into topics of interest to academics and
policy professionals. Visit

Publications and Other Media

The Economic Policy Review—a policy-oriented journal focusing on economic and financial market issues.


EPR Executive Summaries—online versions of selected Economic Policy Review articles, in abridged form.


Current Issues in Economics and Finance—concise studies of topical economic and financial issues.


Second District Highlights—a regional supplement to Current Issues.



Staff Reports—technical papers intended for publication in leading economic and finance journals,
available only online.
Publications and Other Research—an annual catalogue of our research output.


Street Economics—a blog that enables our economists to engage with the public on important
economic issues quickly and frequently.


Research UPDATE n Number 2, 2012

Top Blog Posts of Q2


ur Liberty Street Economics blog
publishes on economic topics twice a
week—more frequently when there is a
post on a newly released report or on a
pressing topic.

n “How

Low Will the Unemployment Rate Go?” by
Jonathan McCarthy, Simon Potter, and Ayşegül
Şahin, April 2 – 2,644 downloads
In the concluding post of the blog’s labor
market series, the authors run simulations based on
the movements in the outflow and inflow rates of
the previous three economic expansions to determine the effect on the unemployment rate if the
current expansion lasts as long as any of the
previous ones.

Listed below are the top five posts in the second

“ Grading Student Loans,” by Meta Brown, Andrew
Haughwout, Donghoon Lee, Maricar Mabutas,
and Wilbert van der Klaauw, March 5 –

n “What’s

Driving Up Money Growth?” by Jamie
McAndrews, Donald Morgan, and James Vickery,
May 23 – 2,618 downloads

The authors examine the overall student loan
debt market as of third-quarter 2011, giving
particular attention to changes from the second to
the third quarter and highlighting new findings by
age group.

The authors show that they can attribute most,
but not all, of the recent high money growth rate of
monetary aggregate M1 to low current interest rates
as well as the growth in bank reserves that has
resulted from the Fed’s asset purchase programs.

n “Historical

Echoes: We Are the 99 Percent,
1765 Edition,” by Kara Masciangelo and Jamie
McAndrews, April 13 – 6,705 downloads

n “The

Great Moderation, Forecast Uncertainty, and
the Great Recession,” by Ging Cee Ng and Andrea
Tambalotti, May 14 – 2,533 downloads

Masciangelo and McAndrews look back to the
1760s, when an economic downturn caused a great
deal of hardship for most of the residents of New
York, and conspicuous shows of extreme wealth by
the few were met with disapproval.

Ng and Tambalotti attempt to quantify the role
the Great Moderation played in making the Great
Recession appear nearly impossible in the eyes
of macroeconomists.
The blog posts are available at:

Follow Us on Twitter!
The Research Group has a Twitter feed, designed to offer the first word on news going on in the Group,
such as:
n	 new

publications and blog posts,

n	 updates

on economists’ work and speaking engagements,

n	 postings
n	 media

of key indexes and data,

coverage of the Group’s work.

Follow us at @NYFedResearch.

federal reserve bank of new york

Most Downloaded Publications


SSRN website, second-quarter 2012:

isted below are the most sought-after
Research Group articles and papers from the
New York Fed’s website and from the
Bank’s page on the Social Science Research
Network site (

n	 “Determinants

and Impact of Sovereign Credit
Ratings,” by Richard Cantor and Frank Packer
(Economic Policy Review, vol. 2, no. 2,
October 1996) – 292 downloads

New York Fed website, second-quarter 2012:


n	 “Shadow

Banking,” by Zoltan Pozsar, Tobias Adrian,
Adam Ashcraft, and Hayley Boesky (Staff Reports,
no. 458, July 2010) – 7,293 downloads

n	 “Understanding


“The Corporate Governance of Banks,” by
Jonathan R. Macey and Maureen O’Hara
(Economic Policy Review, vol. 9, no. 1,
April 2003) – 242 downloads
“Corporate Governance and Banks: What Have
We Learned from the Financial Crisis?” by Hamid
Mehran, Alan Morrison, and Joel Shapiro (Staff
Reports, no. 502, June 2011) – 194 downloads

the Securitization of Subprime
Mortgage Credit,” by Adam Ashcraft and
Til Schuermann (Staff Reports, no. 318,
March 2008) – 4,178 downloads


“Shadow Banking Regulation,” by Tobias Adrian
and Adam Ashcraft (Staff Reports, no. 559,
April 2012) – 3,731 downloads

For lists of the top-ten downloads, visit

Recently Published
Emanuel Moench. 2012. “Term Structure Surprises:
The Predictive Content of Curvature, Level, and
Slope.” Journal of Applied Econometrics 27, no. 4
(June/July): 574-602.

Jaison Abel. 2012. “Knowledge in Cities,” with Todd
Gabe, Adrienne Ross, and Kevin Stolarick. Urban
Studies 49, no. 6 (May): 1179-200.
Jaison Abel and Richard Deitz. 2012. “Do Colleges
and Universities Increase Their Region’s Human
Capital?” Journal of Economic Geography 12, no. 2
(May): 667-91.

Paolo Pesenti. 2012. Comment on “Firm Heterogeneity, Endogenous Entry, and the Business Cycle,”
by Gianmarco Ottaviano. In Jeffrey Frankel and
Christopher Pissarides, eds., NBER International
Seminar on Macroeconomics 2011. Chicago:
University of Chicago Press.

Meta Brown. 2012. “A New Test of Borrowing Constraints for Education,” with John Karl Scholz and
Ananth Seshadri. Review of Economic Studies 79,
no. 2 (April): 511-38.

Tanju Yorulmazer. 2012. “Imperfect Competition
in the Interbank Market for Liquidity as a Rationale
for Central Banking,” with Viral Acharya and
Denis Gromb. American Economic Journal:
Macroeconomics 4, no. 2 (April): 184-217.

Nicola Cetorelli and Linda Goldberg. 2012. “Follow
the Money: Quantifying Domestic Effects of Foreign Bank Shocks in the Great Recession.” American
Economic Review: Papers and Proceedings 102, no. 3
(May): 213-8.

Basit Zafar. 2012. “Double Majors: One for Me, One
for Mom and Dad?” Economic Inquiry 50, no. 2
(April): 287-308. n


Research UPDATE n Number 2, 2012

Papers Presented
“The Gender Unemployment Gap,” Stefania Albanesi.
Ninth New York–Philadelphia Workshop on Quantitative Macroeconomics, New York City, May 4. With
Ayşegül Şahin.

Nobuhiro Kiyotaki. Also presented at the Paris School
of Economics, Paris, France, April 12, and the Fourteenth Annual Inflation Targeting seminar, Central
Bank of Brazil, Rio de Janeiro, Brazil, May 11.

“Maternal Health and Fertility: An International
Perspective,” Stefania Albanesi. NBER Cohort Studies
Meeting, Cambridge, Massachusetts, April 13. Also
presented at the City University of New York Institute
for Demographic Research seminar, New York City,
April 20.

“Rare Shocks, Great Recessions,” Marco Del Negro.
Bank of France conference, Paris, France, April 10.
With Vasco Cúrdia and Daniel Greenwald.
“Anxiety in the Face of Risk,” Thomas Eisenbach.
Conference on “People and Money 2012: The Human
Factor in Financial Decision Making,” DePaul University, Chicago, Illinois, June 1. With Martin Schmalz.

“Optimal Taxation of Entrepreneurial Capital with
Private Information,” Stefania Albanesi. NBER TransAtlantic Public Economics Seminar on Business Taxation,
University of Oxford, Oxford, England, June 21. Also
presented at the Society for Economic Dynamics
Annual Meeting, Limassol, Cyprus, June 24.

“House Price Booms, Current Account Deficits, and
Low Interest Rates,” Andrea Ferrero. Georgetown
University seminar, Washington, D.C., April 27.
“Liquidity Management of U.S. Global Banks,” Linda
Goldberg. Graduate Center of the City University
of New York seminar, New York City, May 1. With
Nicola Cetorelli. Also presented at the Workshop on
Financial Globalization, Financial Crises, and the
(Re-) Regulation of Banking, University of Zurich,
Zurich, Switzerland, May 15.

“Have Financial Markets Become More Informative?”
Jennie Bai. Society for Economic Dynamics Annual
Meeting, Limassol, Cyprus, June 24. With Alexi Savov
and Thomas Philippon.
“Student Loan Balance and Repayment Trends in the
FRBNY Consumer Credit Panel,” Meta Brown and
Donghoon Lee. Financing Human Capital, Credit
Constraints, and Market Frictions Workshop, sponsored by the University of Chicago’s Becker Friedman
Institute for Research in Economics, Chicago, Illinois,
June 6.

“Perspectives on Financial Interconnectedness and
Cooperation,” Linda Goldberg. Remarks delivered
at the Swiss National Bank–International Monetary
Fund Conference, Zurich, Switzerland, May 9.
“The Record of Cross-Border Banking in Emerging
Markets,” Linda Goldberg. Conference on “The End
of Cross-Border Banking in Emerging Markets?”
cosponsored by the European Bank for Reconstruction and Development, the Group of Twenty, and the
Reinventing Bretton Woods Committee, London,
England, May 17.

“Vouchers, Responses, and the Test-Taking Population: Regression Discontinuity Evidence from
Florida,” Rajashri Chakrabarti. Columbia University
seminar, New York City, April 19.
“DSGE Model-Based Forecasting,” Marco Del Negro.
European Center for Advanced Research in Economics and Statistics seminar, Brussels, Belgium, April 5.
With Frank Schorfheide.

“Bailouts and Financial Fragility,” Todd Keister.
2012 Shanghai Macroeconomics Workshop,
Shanghai University of Finance and Economics,
Shanghai, China, June 10.

“The Great Escape? A Quantitative Evaluation of the
Fed’s Non-Standard Policies,” Marco Del Negro.
Bank of Belgium conference, Brussels, Belgium,
April 6. With Gauti Eggertsson, Andrea Ferrero, and

federal reserve bank of new york
Korea, June 20. With Giancarlo Corsetti and
Philippe Martin.

“Fundamentals: Does the Cause of Banking Panics
Matter for Prudential Policy?” Todd Keister.
2012 Midwest Macroeconomics Meetings, University
of Notre Dame, South Bend, Indiana, May 12. With
Vijay Narasiman.

“The Measurement and Behavior of Uncertainty:
Evidence from the ECB Survey of Professional Forecasters,” Robert Rich. 2012 Midwest Macroeconomics
Meetings, University of Notre Dame, South Bend,
Indiana, May 11. With Joseph Song and Joseph Tracy.

“Financial Intermediation, Asset Prices, and Macroeconomic Dynamics,” Emanuel Moench. Organisation for Economic Co-operation and Development
seminar, Paris, France, May 21. With Tobias Adrian
and Hyun Song Shin.

“Inflation Expectations and Behavior: Do Survey
Respondents Act on Their Beliefs?” Wilbert van der
Klaauw. University College London seminar, London,
England, May 23. With Olivier Armantier, Wandi
Bruine de Bruin, Giorgio Topa, and Basit Zafar. Also
presented at a Bank of England seminar, London,
England, May 25, and the Society for Economic Dynamics Annual Meeting, Limassol, Cyprus, June 24.

“The Pre-FOMC Announcement Drift,” Emanuel
Moench. Deutsche Bundesbank seminar, Frankfurt,
Germany, May 18. With David Lucca. Also presented
at the Bank of France, Paris, France, May 22, a University of Bonn seminar, Bonn, Germany, May 24, and
a Swiss National Bank seminar, Zurich, Switzerland,
June 1.

“How Does Risk Management Influence Production
Decisions? Evidence from a Field Experiment,” James
Vickery. NBER Universities Research Conference on
“Insurance Markets and Catastrophe Risk,” Cambridge,
Massachusetts, May 11. With Shawn Cole and
Xavier Giné.

“Theoretical Notes on Commodity Prices and Monetary Policy,” Paolo Pesenti. Bank for International
Settlements research workshop on “Globalization
and Inflation Dynamics in Asia and the Pacific,”
Hong Kong, China, June 18.

“Determinants of College Major Choice: Identification Using an Information Experiment,” Basit Zafar.
Ohio State University Department of Economics
seminar, Columbus, Ohio, May 24. n

“Varieties and the Transfer Problem,” Paolo Pesenti.
Fifteenth Korean Eco omic Association International
Conference on “Prospects for the Future: Shaping
New Approaches and Issues in Economics,” Seoul,


Research UPDATE n Number 2, 2012

New Titles in the Staff Reports Series
Macroeconomics and Growth

in their sample at the baseline. The authors find that
revised attitudes are, on average, significantly different
from baseline attitudes, indicating that providing information had a meaningful effect on U.S. favorability.
Observed revisions are a consequence of both the salience of already known information and information
acquisition that leads to a convergence in attitudes
across respondents with different priors. This analysis provides evidence that 1) public opinions are not
purely a cultural phenomenon and are malleable, and
2) the tendency of respondents to ignore information
not aligned with their priors can be overcome. These
findings make the case for dissemination of accurate
information about various aspects of the PakistanU.S. relationship in order to improve opinion about
the United States.

No. 560, May 2012
How “Unconventional” Are Large-Scale Asset
Purchases? The Impact of Monetary Policy
on Asset Prices
Carlo Rosa
This paper examines the impact of large-scale asset
purchases (LSAPs) on U.S. asset prices using an event
study with intraday data. Estimation results show that
the LSAP news has economically large and highly
significant effects on asset prices, even after controlling for the surprise component of the Fed’s conventional target rate decision and communication about
its future path of policy. The study documents that the
cumulative financial market impact of the Fed’s LSAP
program is equivalent to an unanticipated cut in the
federal funds target rate that ranges between zero (for
three-month yields) and 197 basis points (for ten-year
yields), with the response of stock prices and foreign
exchanges lying within this interval. These point
estimates are, however, surrounded by considerable
uncertainty. By looking at the cross-asset reactions,
Rosa concludes that, for most U.S. asset prices, the
effects of asset purchases are not statistically different
from an unanticipated cut in the fed funds target rate.

No. 562, June 2012
Payment Changes and Default Risk: The Impact of
Refinancing on Expected Credit Losses
Joseph Tracy and Joshua Wright
This paper analyzes the relationship between changes
in borrowers’ monthly mortgage payments and future
credit performance. This relationship is important
for the design of an internal refinance program such
as the Home Affordable Refinance Program (HARP).
Tracy and Wright use a competing risk model to estimate the sensitivity of default risk to downward adjustments of borrowers’ monthly mortgage payments
for a large sample of prime adjustable-rate mortgages.
Applying a 26 percent average monthly payment
reduction that they estimate would result from refinancing under HARP, the authors find that the
cumulative five-year default rate on prime conforming
adjustable-rate mortgages with loan-to-value ratios
above 80 percent declines by 3.8 percentage points.
If they assume an average loss given a default of
35.2 percent, this lower default risk implies reduced
credit losses of 134 basis points per dollar of balance
for mortgages that refinance under HARP.

No. 558, April 2012
How Deeply Held Are Anti-American Attitudes
among Pakistani Youth? Evidence Using
Experimental Variation in Information
Adeline Delavande and Basit Zafar
This paper investigates how attitudes toward the
United States are affected by the provision of information. Delavande and Zafar use an experimentally generated panel of attitudes, obtained by providing urban
Pakistanis with fact-based statements describing the
United States in either a positive or negative light.
Anti-American sentiment is high and heterogeneous

federal reserve bank of new york

Banking and Finance

No. 561, May 2012
Estimating a Structural Model of Herd Behavior in
Financial Markets
Marco Cipriani and Antonio Guarino

No. 559, April 2012
Shadow Banking Regulation
Tobias Adrian and Adam B. Ashcraft

Cipriani and Guarino develop a new methodology
for estimating the importance of herd behavior in
financial markets. Specifically, they build a structural
model of informational herding that can be estimated
with financial transaction data. In the model, rational
herding arises because of information-event uncertainty. The authors estimate the model using 1995
stock market data for Ashland Inc., a company listed
on the New York Stock Exchange. Herding occurs
often and is particularly pervasive on certain days. On
an information-event day, on average, 2 percent
(4 percent) of informed traders herd-buy (-sell). On
7 percent (11 percent) of information-event days, the
proportion of informed traders who herd-buy (-sell)
is greater than 10 percent. Herding causes important
informational inefficiencies, amounting, on average,
to 4 percent of an asset’s expected value. n

Shadow banks conduct credit intermediation without
direct, explicit access to public sources of liquidity
and credit guarantees. The banks contributed to the
credit boom in the early 2000s and collapsed during
the financial crisis of 2007-09. Adrian and Ashcraft
review the rapidly growing literature on shadow
banking and provide a conceptual framework for its
regulation. Since the financial crisis, regulatory reform efforts have aimed at strengthening the stability
of the shadow banking system. They review the implications of these reform efforts for shadow funding
sources, including asset-backed commercial paper,
tri-party repurchase agreements, money market
mutual funds, and securitization. Despite significant
efforts by lawmakers, regulators, and accountants, the
authors find that progress in achieving a more stable
shadow banking system has been uneven.


Research UPDATE n Number 2, 2012

Research and Statistics Group
Publications and Blog Posts
Liberty Street Economics

Publications are available at

Economic Policy Review,

The blog posts are available at

The Federal Reserve’s Term Asset-Backed Securities
Loan Facility
Adam Ashcraft, Allan Malz, and Zoltan Pozsar

April 2
How Low Will the Unemployment Rate Go?
Jonathan McCarthy, Simon Potter, and Ayşegül Şahin

Current Issues in Economics
and Finance, Vol. 18

April 4
Corridors and Floors in Monetary Policy
Todd Keister

No. 3
The Evolution of Treasury Cash Management
during the Financial Crisis
Paul J. Santoro

April 6
Historical Echoes: Fed Chairman or Rock Star?
When Arthur Burns Made Rolling Stone
Amy Farber

No. 4
Robust Capital Regulation
Viral Acharya, Hamid Mehran, Til Schuermann, and
Anjan Thakor

April 9
Innovations in Treasury Debt Instruments
Kenneth Garbade
April 11
The European Growth Outlook and Its Risks
Joshua Abel, Robert Rich, and Joseph Tracy

Staff Reports
No. 558, April 2012
How Deeply Held Are Anti-American Attitudes
among Pakistani Youth? Evidence Using
Experimental Variation in Information
Adeline Delavande and Basit Zafar

April 13
Historical Echoes: We Are the 99 Percent,
1765 Edition
Kara Masciangelo and Jamie McAndrews

No. 559, April 2012
Shadow Banking Regulation
Tobias Adrian and Adam B. Ashcraft

April 16
The Federal Reserve in the 21st Century
2012 Symposium
Eric Tucker

No. 560, May 2012
How “Unconventional” Are Large-Scale Asset
Purchases? The Impact of Monetary Policy
on Asset Prices
Carlo Rosa

Forecasting the Great Recession:
DSGE vs. Blue Chip
Marco Del Negro, Daniel Herbst, and Frank

No. 561, May 2012
Estimating a Structural Model of Herd Behavior in
Financial Markets
Marco Cipriani and Antonio Guarino

April 30
The Impact of Trade Reporting on the Interest Rate
Derivatives Market
Michael Fleming, John Jackson, Ada Li, Asani Sarkar,
and Patricia Zobel

No. 562, June 2012
Payment Changes and Default Risk: The Impact of
Refinancing on Expected Credit Losses
Joseph Tracy and Joshua Wright

May 2
Euro Area Spending Imbalances and the Sovereign
Debt Crisis
Matthew Higgins and Thomas Klitgaard

federal reserve bank of new york
May 4
Historical Echoes: Pneumatic Tubes and Banking
Amy Farber

May 30
Are CDS Derivatives Associated with Higher
Corporate Defaults?
Stavros Peristiani

May 7
The Flash Crash, Two Years On
Adam Biesenbach and Marco Cipriani

Just Released: Regional Economic Press Briefing on
Job Polarization and Rising Inequality
Jaison R. Abel and Richard Deitz

May 9
A Boost in Your Paycheck: How Are U.S. Workers
Using the Payroll Tax Cut?
Basit Zafar, Grant Graziani, and
Wilbert van der Klaauw

June 1
Historical Echoes: The Symbolism of the Bull and
the Bear
Amy Farber
June 4
Is the 2005 Bankruptcy Reform Working?
Donald Morgan

May 11
Just Released: The New York Fed Staff Forecast—
May 2012
Jonathan McCarthy, Richard Peach, and Simon Potter

June 6
Is Wall Street the Only Street in New York City?
Jason Bram, Jonathan Hastings, and James Orr

May 14
The Great Moderation, Forecast Uncertainty, and
the Great Recession
Ging Cee Ng and Andrea Tambalotti

Just Released: New York’s Latest Beige Book Report
Signals Steady Growth
Jaison Abel and Jason Bram

May 16
The Private Premium in Public Bonds?
Anna Kovner and Chenyang Wei

June 8
Historical Echoes: When Fed Officials Wax Poetic
Amy Farber

May 18
Historical Echoes: Our Checking Accounts,
Ourselves—Or, Say Good Night, Gracie’s
Checking Account
Amy Farber

June 11
Money Market Funds and Systemic Risk
Marco Cipriani, Michael Holscher, Antoine Martin,
and Patrick McCabe

May 21
Just Released: The Euro-Zone Growth Outlook—
Calm before the Storm?
Joshua Abel, Robert Rich, and Joseph Tracy

June 25
Mapping and Sizing the U.S. Repo Market
Adam Copeland, Isaac Davis, Eric LeSueur, and
Antoine Martin

What Falling Export Share Says about U.S. Export
Benjamin R. Mandel

June 27
Fiscal Drag from the State and Local Sector?
Nora Fitzpatrick, Andrew Haughwout, and
Elizabeth Setren

May 23
What’s Driving Up Money Growth?
Jamie McAndrews, Donald Morgan, and
James Vickery

June 29
Historical Echoes: A Water Machine that Simulates
the Economy
Amy Farber

May 25
Historical Echoes: From the Bonfires to the
Frozen Assets
Mary Tao