Found 22 article(s) for author 'Samuel Hanson'

Strengthening and Streamlining Bank Capital Regulation

Strengthening and Streamlining Bank Capital Regulation. Robin Greenwood, Samuel Hanson, Jeremy Stein, Adi Sunderam, August 2017, Paper, “We propose three core principles that should inform the design of bank capital regulation. First, wherever possible, multiple constraints on the minimum level of equity capital should be consolidated into a single constraint. This helps to avoid a distortionary situation where different constraints bind for different banks performing the same activity. Second, while a regulatory framework that relies primarily on minimum capital ratios is appropriate for normal times, such a framework is inadequate in the wake of a large negative shock to the system. Following an adverse shock, it becomes critical to emphasize dynamic resilience, which involves forcing banks to actively recapitalize—i.e. regulation needs to focus on getting banks to raise new dollars of equity capital, rather than just maintaining their capital ratios.Link

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Interest Rate Conundrums in the Twenty-First Century

Interest Rate Conundrums in the Twenty-First Century. Samuel Hanson, March 31, 2017, Paper, “A large literature argues that long-term interest rates appear to react far more to high-frequency (for example, daily or monthly) movements in short-term interest rates than is predicted by the standard expectations hypothesis. We find that, since 2000, such high-frequency “excess sensitivity” remains evident in U.S. data and has, if anything, grown stronger. By contrast, the positive association between low-frequency changes (such as those seen at a six- or twelve-month horizon) in short- and long-term interest rates, which was quite strong before 2000, has weakened substantially in recent years. As a result, “conundrums”— defined as six- or twelve-month periods in which short rates and long rates move in opposite directions—have become far more common since 2000.Link

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The Decline of Big-Bank Lending to Small Business: Dynamic Impacts on Local Credit and Labor Markets

The Decline of Big-Bank Lending to Small Business: Dynamic Impacts on Local Credit and Labor Markets. Samuel Hanson, Jeremy Stein, March 2017, Paper, “Small business lending by the four largest U.S. banks fell sharply relative to other banks beginning in 2008 and remained depressed through 2014. We explore the consequences of this credit supply shock, with a particular focus on the resulting dynamic adjustment process. Using a difference-indifference approach that compares counties where the Top 4 banks had a higher initial market share to counties where they had a smaller share, we find that the aggregate flow of small business credit fell and interest rates rose from 2006 to 2010 in high Top 4 counties. Economic activity also contracted in these affected counties: fewer businesses expanded employment, the unemployment rate rose, and wages fell. Moreover, the employment effects were concentrated in industries that are most reliant on external finance, such as manufacturing.Link

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The Financial Regulatory Reform Agenda in 2017

The Financial Regulatory Reform Agenda in 2017. Robin Greenwood, Samuel Hanson, Jeremy Stein, Adi Sunderam, February 2017, Paper, “We take stock of the post-crisis financial regulatory reform agenda. We highlight and summarize areas of clear progress, where post-crisis reforms should either be maintained or built upon. We then identify several areas where the new regulations could be streamlined or rolled back in an effort to reduce the burden on the financial sector, particularly on smaller banks.Link

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The Federal Reserve’s Balance Sheet as a Financial-Stability Tool

The Federal Reserve’s Balance Sheet as a Financial-Stability Tool. Robin Greenwood, Samuel Hanson, Jeremy Stein, September 2016, Paper, “In this paper, we argue that the Federal Reserve should use its balance sheet to help reduce a key threat to financial stability: the tendency for private-sector financial intermediaries to engage in excessive amounts of maturity transformation—i.e. to finance risky assets using dangerously large volumes of runnable short-term liabilities. Specifically, we make the case that the Fed can complement its regulatory efforts on the financial-stability front by maintaining a relatively large balance sheet, even when policy rates have moved well away from the zero lower bound (ZLB). In so doing, it can help ensure that there is an ample supply of government-provided safe shortterm claims—e.g. interest-bearing reserves and reverse repurchase agreements.Link

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A Model of Credit Market Sentiment

A Model of Credit Market Sentiment. Robin Greenwood, Samuel Hanson, March 24, 2016, Paper. “We present a model of credit market sentiment in which investors form beliefs about future creditworthiness by extrapolating past defaults. Our key contribution is to model the endogenous two-way feedback between credit market sentiment and credit market outcomes. This feedback arises because investors’ beliefs depend on past defaults, but beliefs also drive future defaults through investors’ willingness to refinance debt. Our model is able to capture many documented features of credit booms and busts, including the link between credit growth and future returns, and the “calm before the storm” periods in which fundamentals have deteriorated but the credit market has not yet turned.Link

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The Optimal Maturity of Government Debt

The Optimal Maturity of Government Debt. Robin Greenwood, Samuel Hanson, Lawrence Summers, 2016, Book Chapter. “The central task of debt management is to decide which debt instruments the government should issue in order to finance itself over time. What programs the government should pursue and whether the government should finance its current expenditures by collecting taxes or by borrowing are outside the purview of debt management.  Historically, U.S. debt managers had three main instruments available to them: Trea sury bills with a maturity of less than one year, intermediate-maturity notes with maturities up to ten years, and long-term bonds. Inflation-protected securities were introduced in 1997 and floating-rate notes were added in 2014.Link

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Asset Price Dynamics in Partially Segmented Markets

Asset Price Dynamics in Partially Segmented Markets. Robin Greenwood, Samuel Hanson, December 2015, Paper. “How do supply shocks in one financial market affect prices in other markets? We develop a model in which capital moves quickly within each asset class, but slowly between asset classes. While most investors specialize in a single market, a handful of generalists can gradually reallocate capital across markets. When a supply shock arrives, prices of risk in the impacted market become disconnected from those in others. Over the long-run, capital flows between markets and prices of risk become more closely aligned. While prices in the impacted market initially overreact to shocks, under plausible conditions, prices in related markets underreact …Link

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Forward Guidance in the Yield Curve: Short Rates versus Bond Supply

Forward Guidance in the Yield Curve: Short Rates versus Bond Supply. Robin Greenwood, Samuel Hanson, November 17, 2015, Paper. “We present a model of the yield curve in which the central bank can provide market participants with forward guidance on both future short rates and on future Quantitative Easing (QE) operations, which affect bond supply. Forward guidance on short rates works through the expectations hypothesis, while forward guidance on QE works through expected future bond risk premia. If a QE operation is expected to be undone in the near term, then its announcement will have a hump-shaped effect…Link

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A Comparative-Advantage Approach to Government Debt Maturity

A Comparative-Advantage Approach to Government Debt Maturity. Robin Greenwood, Samuel Hanson, Jeremy Stein, August 2015, Paper. “The government’s choice of shorter-maturity debt issuance may complement prudential financial regulation by crowding out private issuance, thereby limiting excess private money creation. Although greater short-term government debt increases rollover risk because of a reduction in private short-term debt, the government’s optimal debt maturity choice can reduce the social cost of excessive private debt issuance.Link

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