Macroprudential Policy: Results From A Tabletop Exercise
Macroprudential policy’s goal is to promote financial stability and reduce the volatility of economic cycles. Some of these tools are yet to be tested and their interaction with monetary policy is still partially unknown. This paper brought together several senior Federal Reserve officials and presented them with a hypothetical scenario for the economy as of the second quarter of 2020 that included some frothiness in commercial real estate, leveraged lending, and equity markets. After asking them to discuss the use of the monetary and macroprudential tools available, a hypothetical negative shock to commercial real estate was introduced. The potential policy reactions were debated again. Some interesting conclusions: macroprudential tools might have limits when controlling narrow risks; monetary policy might not always simultaneously meet macroeconomic and financial stability goals.
Read More: https://www.clevelandfed.org/en/newsroom-and-events/publications/working-papers/2019-working-papers/wp-1911-macroprudential-policy-results-from-a-tabletop-exercise.aspx
Communications Within Banking Organizations And Small Business Lending
Small business lending has a stronger reliance on the transmission of soft information because hard quantitative data is scarcer for smaller firms. This paper models the transmission of soft information across banking organizations by using the travel time between a bank’s branch and its headquarters. Results find that decreases in travel time introduced by new airline routes, facilitates the transmission of soft information within a bank leading to a boost in small business lending.
Read More: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3384958
Credit Supply And Productivity Growth
This paper studies the relationship between bank credit and firm productivity. By using a broad database covering the credit relationship of Italian corporations between 1997-2013, the authors find that contractions in credit supply cause declines in firm-level productivity which can have persistent effects on aggregate output. In addition, credit availability also stimulates productivity-enhancing decisions like IT adoption, innovation or export orientation.
Read More: https://www.imf.org/en/Publications/WP/Issues/2019/05/17/Credit-Supply-and-Productivity-Growth-46894
Loan Guarantees And Credit Supply
Do loan guarantees increase lending supply or do they act as subsidy to lenders? This paper looks into loans backed by the Small Business Administration to try and answer this question. Their research finds that loan originations are clustered around the side of the subsidy thresholds that carry a more generous guarantee. They estimate that increasing guarantee generosity by 1 percentage point of loan principal would increase per-loan lending volume by $19,000.
Read More: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3367958
Who Has Equity In Their Homes? Who Doesn’t’?
According to the 2016 Survey of Consumer Finances, the median household had 68% of its wealth in the form of its primary residence, but the disparities between households were significant. This blog post explores the main demographic differences between those who have equity in their homes and those who don’t. Age, income levels, education and race/ethnicity seem to play a major role in explaining these differences. Interestingly, those without home equity mostly accumulate wealth through their vehicles (such as cars, RVs and boats).
Read More: https://www.stlouisfed.org/on-the-economy/2019/may/staff-pick-who-equity-their-homes-who-doesnt