http://www.frbatlanta.org/ Notes from the Vault is a monthly analysis of financial topics by the Center for Financial Innovation and Stability (CenFIS). Topics range from policy issues concerning financial markets and institutions to those of more general interest, including the behavior of financial markets and the implications for participants in those markets. http://www.frbatlanta.org/images/icon_frblogo.jpg http://www.frbatlanta.org http://www.frbatlanta.org/cenfis/pubscf/nftv_1203.cfm Fri, 23 Mar 2012 14:00:00 EST Much attention has been focused lately on the payment system in the eurozone, or TARGET2. How does the settlement system work, and what are the risks to individual countries' central banks that borrow and lend? http://www.frbatlanta.org/cenfis/pubscf/nftv_1112.cfm Wed, 18 Jan 2012 12:00:00 EST The sovereign debt crisis in Europe has seen new developments almost every day. A conference at the Atlanta Fed examined the origins of the crisis, its larger implications, and what may happen in the coming year. http://www.frbatlanta.org/cenfis/pubscf/vn_private_deleveraging.cfm Wed, 16 Mar 2011 14:00:00 EST The budgets of state and local governments are under intense scrutiny these days, with many pundits predicting massive governmental debt defaults. February's Notes from the Vault takes a practical look at the data and suggests that these predictions are overstated, even alarmist. http://www.frbatlanta.org/cenfis/pubscf/vn_private_deleveraging.cfm Tue, 30 Nov 2010 14:00:00 EST The general public is deleveraging at the same time that some national governments are running substantial deficits, effectively undoing at least some of the deleveraging. What are the economic arguments concerning these deficits? http://www.frbatlanta.org/cenfis/pubscf/vn_credit_default_swaps.cfm Fri, 29 Oct 2010 16:00:00 EST Credit default swaps continue to be controversial, but a review of recent developments for Ireland suggests that CDS spreads reflect fundamental developments, not mindless speculation. http://www.frbatlanta.org/cenfis/pubscf/vn_global_crisis.cfm Fri, 24 Sep 2010 12:20:00 EST Many countries did not experience the "global" financial crisis in 2007 and 2008. But research presented at a conference cosponsored by the Atlanta Fed shows that some conditions in the United States and elsewhere still left many of these countries vulnerable to adverse effects. http://www.frbatlanta.org/cenfis/pubscf/vn_bailouts.cfm Wed, 26 May 2010 12:20:00 EST * A bailout need not benefit the owners of a firm much or even at all. Much of the benefit may flow to holders of the firm's debt; * The bailouts of Fannie Mae and Freddie Mac provide an excellent case study for learning about bailouts; * The biggest cost of an expected bailout can be distortion of investment toward firms with a bailout guarantee and encouragement of riskier activities, because the government and ultimately taxpayers bear the risk normally borne by holders of the firms' debt. http://www.frbatlanta.org/cenfis/pubscf/vn_too_big_to_fail.cfm Tue, 16 Feb 2010 14:45:00 EST * "Too big to fail" is a policy that results from authorities' choices that shield creditors of failed banks from losses in the failed bank; * Too big to fail creates a situation in which banks' creditors expect to receive funds from others, such as taxpayers, when banks are unable to pay their obligations; * While the FDIC Improvement Act of 1991 was expected to reduce the likelihood of banks being too big to fail, events during the 2008 financial crisis clearly indicate that too big to fail is alive and well, at least in financial crises. http://www.frbatlanta.org/cenfis/pubscf/vn_reg_systemic_risk_1209.cfm Wed, 02 Dec 2009 11:45:00 EST * The financial crisis of 2008 is a clear example of systemic risk becoming real and affecting financial markets; * Differences in the regulatory environment from country to country appear to explain some but not all of the differences in how the crisis affected different countries; * Financial regulation that considers the international dimensions of financial markets and institutions is both desirable and feasible; * Two specific regulatory proposals to reduce the frequency and severity of financial crises are contingent capital—funds that convert to capital in bad times—and regulation of systemic risk by bank examiners. http://www.frbatlanta.org/cenfis/pubscf/vn_short_selling.cfm Wed, 04 Nov 2009 11:45:00 EST * Financial economists and practitioners generally have a positive view of short selling, a view on evidence at CenFIS's conference on short selling; * The ban on short sales in some firms did not increase trading in options, an effect that might have been expected; * Short sales might be made more efficient by a centralized listing of stock that can be borrowed and sold short; * Policy changes that are quick responses to financial difficulties can create uncertainty about future policies. http://www.frbatlanta.org/cenfis/pubscf/vn_interest_on_reserves.cfm Wed, 07 Oct 2009 11:45:00 EST * Banks are holding substantially more excess reserves than in August 2008; * The Federal Reserve began paying interest on reserves in October 2008 and currently is paying an interest rate on reserves similar to rates on short-term Treasury securities; * Payment of interest on reserves accounts for much, though probably not all, of the increase in excess reserves. http://www.frbatlanta.org/cenfis/pubscf/stock_prices_infinancial_crisis.cfm Wed, 09 Sep 2009 11:45:00 EST * Stock prices fell roughly 50 percent from peak to trough from October 2007 to March 2009. * These drops in stock prices are large relative to those associated with earlier recessions since World War II. * This extraordinary plunge in stock prices may reflect effects of the financial crisis rather than lower earnings from an especially severe recession. http://www.frbatlanta.org/cenfis/pubscf/credit_ratings_and_derivatives.cfm Fri, 28 Aug 2009 11:45:00 EST * Credit ratings are not complete summaries of securities' riskiness; * Structured securities change securities' cash flows and riskiness in nonobvious ways; * The old-fashioned advice "If you don't understand it, don't buy it" seems to apply quite well here.