In a new paper prepared for the Handbook of Financial Integration, edited by Guglielmo Maria Caporale, Hiro Ito and I examine bond based measures of financial market integration (so, no quantity stock/flow measures, nor banking integration).
Category Archives: financial markets
Rates, Break-evens, VIX & EPU, pre-CS/UBS
After last week’s financial turmoil, but before the CS/UBS deal, real rates and inflation breakevens were down, while risk and uncertainty indicators were up.
SVB, SIFIs, Dodd-Frank, EGRRCPA, HQLA and the LCR
One major question posed by recent events is whether the issues SVB faced would’ve been caught had EGRRCPA not been passed (which raised the threshold for what qualifies as a SIFI). Bill Nelson at the Bank Policy Institute has an illuminating post arguing that the liquidity coverage ratio (LCR), which would have applied to SVB had it been classified an SIFI, would not have been triggered. People like former Senator Toomey (a cosponsor of the 2018 act) have asserted that the LCR wouldn’t have caught SVB. Here’s the logic I think he, and others, is relying on.
Banking Turmoil: Deregulation vs. Monetary Profligacy (vs. Unanticipated Events)
I keep on hearing this refrain from people like former senator Toomey (on Bloomberg TV today) that the 2018 deregulation had nothing to do with SVB’s travails; rather its problems (presumably also Credit Suisse’s too) was due to monetary and fiscal profligacy. I thought it would be useful to recap the path of expected interest rates.
Yields, Spreads, and Uncertainty/Risk
Term spreads rising slightly, yields (nominal, real) down, and risk measures up.
Implied Fed funds Peak – from September to May
Using CME futures, from 1:30CT today:
Guest Contribution: “Some Thoughts on SVB”
Today, we present a guest post written by Charles Engel, Donald D. Hester Distinguished Chair in Economics at UW Madison.
Financial Deregulation: Thanks, Trump
On banking regulation, from Forbes:
Thanks to Trump and his supporters this [Dodd-Frank capital and liquidity measures] all changed. Some of the key changes that EGRRCPA made were:
- Increasing the asset threshold for “systemically important financial institutions” or, “SIFIs,” from $50 billion to $250 billion.
- Immediately exempting bank holding companies with less than $100 billion in assets from enhanced prudential standards imposed on SIFIs under Section 165 of the Dodd-Frank Act (including but not limited to resolution planning and enhanced liquidity and risk management requirements)
- Exempting bank holding companies with between $100 billion and $250 billion in assets from the enhanced prudential standards.
- Limiting stress testing conducted by the Federal Reserve to banks and bank holding companies with $100 billion or more in assets.
SVB – No One Should be Surprised
SVB was a collapse waiting to happen. One indicator is the increasing reliance on debt acquired on the capital markets (as opposed to deposits).
One Year In: What Did Putin’s Gambit Do to Spreads, Uncertainty, and Activity?
Bluntly put, term spreads moved toward inversion, and inflation expectations adjusted for premia increased. VIX has been elevated since February 2022, and GeoPolitical Risk rose in the period right after the invasion. Growth, which had been accelerating according to weekly indicators, then decelerated. In other words, “Thanks, Putin”.