Exchange of letters between the Governor and the Chancellor on the Asset Purchase Facility - May 2026
Exchange of letters between the Governor and the Chancellor
Financial institutions
Sectoral interconnectedness in the euro area economies: insights from network analysis
Using who-to-whom data for the last quarter of 2024, I build networks of financial interconnections in the euro area countries. After representing them in chord diagrams, I consider centrality metrics and find that banks dominate, with four exceptions: Cyprus, Ireland, Luxembourg and Malta. In these countries, other financial institutions and investment funds are at the core, with limited links to domestic sectors and strong ones with the rest of the world.
Disciplining digital risk: evidence from cyber stress tests
Investment in cybersecurity in an interconnected banking system has public-good proper- ties: positive externalities can generate systemic underinvestment. Using confidential supervi- sory data from the European Central Bank, we first identify “laggard” European banks that underinvest relative to their cyber-risk profiles, and then examine how supervisory scrutiny af- fects their incentives to invest. We exploit the 2024 ECB Cyber Resilience Stress Test (CyRST) as a quasi-natural experiment.
Sectoral interconnectedness in the euro area economies: insights from network analysis
Using who-to-whom data for the last quarter of 2024, I build networks of financial interconnections in the euro area countries. After representing them in chord diagrams, I consider centrality metrics and find that banks dominate, with four exceptions: Cyprus, Ireland, Luxembourg and Malta. In these countries, other financial institutions and investment funds are at the core, with limited links to domestic sectors and strong ones with the rest of the world.
Disciplining digital risk: evidence from cyber stress tests
Investment in cybersecurity in an interconnected banking system has public-good proper- ties: positive externalities can generate systemic underinvestment. Using confidential supervi- sory data from the European Central Bank, we first identify “laggard” European banks that underinvest relative to their cyber-risk profiles, and then examine how supervisory scrutiny af- fects their incentives to invest. We exploit the 2024 ECB Cyber Resilience Stress Test (CyRST) as a quasi-natural experiment.
FEDS Paper: Pretend or Amend? On Evergreening in CRE
David GlancyLoan modifications can either amplify or mitigate credit losses depending on the strategy lenders employ. Using detailed supervisory data and a model incorporating various frictions that could encourage modifications (liquidity constraints, foreclosure costs, and loss recognition costs), I assess why banks extend CRE loans. I find that extensions predominantly address temporary payment frictions, both in normal times and following the Spring 2023 bank stress episode.
Beyond borders, within societies: inequality and the global transmission of US monetary policy
This paper provides novel evidence on how income inequality shapes the heterogeneity of US monetary policy spillovers to GDP across foreign economies. Using state-dependent local projections and exploiting variation in disposable income inequality across 87 countries over 1966-2020, we show that household heterogeneity influences how foreign GDP responds to a US monetary tightening. GDP contracts up to one and a half times more when inequality is above average. However, while higher inequality amplifies negative spillovers in advanced economies, it mitigates them in emerging markets.
FEDS Paper: Financial Well-being and Inclusion of Justice Involved Populations: Evidence from the SHED
Kabir Dasgupta, Jennifer Fernandez, and Alicia LloroThis study examines financial challenges faced by justice-involved individuals using 2023-2024 Survey of Household Economics and Decisionmaking data. Individuals with justice system contact experience substantially worse financial outcomes than those without criminal records, with disparities widening by severity of involvement.
FEDS Paper: The Effect of the Federal Reserve on the Stock Market: Magnitudes, Channels and Shocks
Benjamin Knox and Annette Vissing-JorgensenWe survey and extend work on the Federal Reserve’s effect on the stock market, focusing on three empirical findings: The effect of monetary policy surprises in a narrow window around announcements from the Federal Open Market Committee (FOMC), the pre-FOMC announcement drift, and the FOMC cycle in stock returns.
FEDS Paper: Price-Segmented Beliefs and the U.S. Housing Boom
Margaret M. JacobsonThis paper shows that expected capital gains in several MSAs were higher for relatively lower-priced, rather than higher-priced, houses during the U.S. boom of the 2000s. Because buyers of lower-priced houses tend to be more sensitive to credit conditions than buyers of higher-priced houses, this paper documents patterns that are consistent with an interaction of beliefs and credit conditions in a time period where direct evidence on house price beliefs is scarce.
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