Weekly Research Rundown – July 19, 2019

Weekly Research Rundown – July 19, 2019

Moving into the Mainstream: Who Graduates from Secured Credit Card Programs?

Secured credit cards provide a gateway to mainstream credit for those with low or no credit score by allowing consumers to graduate to unsecured cards if they demonstrate good usage and repayment behavior. This paper uses account-level data to identify the prevalence of graduation and what behaviors are correlated with graduation. The authors find that graduation rates have increased in recent years across all credit score groups, and the median time for an unscored customer to get a credit score is six months.

Read More: https://www.philadelphiafed.org/-/media/consumer-finance-institute/payment-cards-center/publications/discussion-papers/2019/dp19-02.pdf


Large Bank Cash Balances and Liquidity Regulations & How Do Large Banks Manage Their Cash?

This two-post series discusses the effect of liquidity regulations on banks’ cash balances and the management of these balances at the largest banks. Besides showing the impact of the Liquidity Coverage Ratio on banks’ holdings of excess reserves and high-quality liquid assets, the two notes show that U.S. G-SIBs have a long-run desired cash level which is closely managed.  Moreover, their desired cash level varies with each bank’s business model (Universal, Custodial, or Broker-Dealer) and the opportunity cost of holding cash versus other liquid cash-like assets.


System-Wide Stress Simulation

Since the financial crisis, non-bank financial institutions have become an increasingly important source of credit to the real economy. This paper describes a model for assessing how market-based finance will respond under stress in the UK, with a focus on how dealers, open-end investment funds, hedge funds, and long-term investors may interact under stress. Under a stress scenario in which the corporate profitability outlook worsens quickly, the model predicts large declines in asset prices and funding market activity that could adversely affect the broader economy.

Read More: https://www.bankofengland.co.uk/working-paper/2019/system-wide-stress-simulation


Historical Proxies for the Secured Overnight Financing Rate

In 2017, the Alternative Reference Rate Committee (ARRC) selected the Secured Overnight Financing Rate (SOFR) as its recommended alternative to the London Inter-Bank Offered Rate (LIBOR). This paper describes the available SOFR data and how historical data on primary dealers’ overnight Treasury repo borrowing activity can be used to develop a proxy for SOFR going back to 1998.

Read More: https://www.federalreserve.gov/econres/notes/feds-notes/historical-proxies-for-the-secured-overnight-financing-rate-20190715.htm