Latest from the OFR

Analysis

Briefs

July 22, 2015

Incorporating Liquidity Shocks and Feedbacks in Bank Stress Tests

Incorporating Liquidity Shocks and Feedbacks in Bank Stress Tests

By Jill Cetina

This brief discusses how stress tests could incorporate four types of shocks — to credit, funding, liquidity, and collateral values — and shows that shocks can affect regulatory ratios for capital and liquidity simultaneously. Additionally, in times of stress, a bank’s responses to a binding regulatory ratio can spread shocks to other banks.

July 23, 2015 meeting of the Financial Research Advisory Committee

The sixth meeting of the committee, held in the historic main Treasury Cash Room, will include committee recommendations and discussion topics on stress testing, data collection, data sharing, and analyzing operational risks.

Analysis

Briefs

July 09, 2015

Private Fund Data Shed Light on Liquidity Funds

Private Fund Data Shed Light on Liquidity Funds

By David C. Johnson

This brief analyzes for the first time new confidential data on liquidity funds collected by the Securities and Exchange Commission on Form PF. Liquidity funds generally invest in short-term assets and have portfolios structured to meet investors’ near-term liquidity needs. Compared with prime money market funds, liquidity funds hold assets with relatively longer maturities, have larger holdings of Treasury securities, and invest in a broader range of asset classes.

Analysis

Financial Markets Monitor

July 08, 2015

Uncertainty Increases in Greece, But Signs of Contagion Remain Limited

Uncertainty Increases in Greece, But Signs of Contagion Remain Limited

Important developments in Greece, a sharp equity market correction in China, and Puerto Rico’s announcement of a potential debt restructuring have driven risk sentiment in financial markets. A key market focus has been the increased uncertainty in Greece since late June. Developments there remain fluid; a more disorderly outcome may test the stability of broader euro area markets.

News & Events

Press Releases

June 24, 2015

OFR Financial Stability Update: Risks Remain Moderate

The U.S. Office of Financial Research released today an update to its assessment of threats to financial stability, concluding that overall risks to financial stability remain moderate.

Analysis

Financial Stability Monitor

June 24, 2015

OFR Financial Stability Monitor

OFR Financial Stability Monitor

The monitor displays a snapshot of weaknesses in the financial system based on five functional areas of risk. The monitor is not designed to predict the timing or severity of a financial crisis but to identify underlying vulnerabilities that may predispose the system to a crisis.

Analysis paper on monitor results

Analysis

Working Papers

June 18, 2015

Dynamical Macroprudential Stress Testing Using Network Theory

Dynamical Macroprudential Stress Testing Using Network Theory

By Dror Y. Kenett, Sary Levy-Carciente, Adam Avakian, H. Eugene Stanley, and Shlomo Havlin

This paper presents a dynamic bipartite network model for a stress test of a banking system's sensitivity to external shocks in individual asset classes. As a case study, the model is applied to investigate the Venezuelan banking system from 1998 to 2013. The model quantifies the sensitivity of bank portfolios to different shock scenarios and identifies systemic vulnerabilities that stem from connectivity and network effects, and their time evolution. The model provides a framework for dynamical macroprudential stress testing.

Analysis

Briefs

June 11, 2015

More Transparency Needed For Bank Capital Relief Trades

More Transparency Needed For Bank Capital Relief Trades

By Jill Cetina, John McDonough, and Sriram Rajan

This brief argues that more data are needed to allow investors and counterparties to assess how banks reduce their required regulatory capital by transferring credit risk to third parties. The authors use public regulatory data to show that 18 banks purchased $38 billion in credit protection as of Q4 2014 to obtain regulatory capital relief. They also estimate the impact of these transactions on banks’ risk-based capital ratios.

News & Events

Public Appearances

June 08, 2015

Remarks by OFR Director Richard Berner at the Brookings Institution: Can the Financial Sector Promote Growth and Stability?

Growth and financial stability can not only coexist, but financial stability is a predicate for sustainable prosperity. We have done a lot to build a more resilient financial system, but we have much more to do. Assuring financial stability will always be an ongoing challenge.