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Decomposing systemic risk: the roles of contagion and common exposures

04/22/2024 European Central Bank Central banks

We evaluate the effects of contagion and common exposure on banks’ capital through a regression design inspired by the structural VAR literature and derived from the balance sheet identity. Contagion can occur through direct exposures, fire sales, and market-based sentiment, while common exposures result from portfolio overlaps. We estimate the structural regression on granular balance sheet and interbank exposure data of the Canadian banking market.

Housing investment and the user cost of housing in the euro area

04/22/2024 European Central Bank Central banks

This box examines the current level of housing investment in the euro area as a whole, and in the four largest euro area economies, in relation to the evolution of the user cost of housing. To this end, the box proposes a novel quarterly measure of the user cost of housing by combining quarterly data on mortgage rates, long-term risk-free interest rates and expected house price growth with information on tax rates and structural characteristics of residential construction and housing finance.

How big is the household housing burden? Evidence from the ECB Consumer Expectations Survey

04/22/2024 European Central Bank Central banks

In recent quarters, euro area households have faced higher housing costs, and in particular rising rent or mortgage payments. The ECB Consumer Expectations Survey shows that housing cost dynamics vary across households depending on the type of ownership, with the highest cost increases being borne by those who do not own their home outright (mortgage and renter households). Since 2022 rising housing costs have, on average, largely been offset by growth in household income, leading to stable housing cost to household income ratios.

Why Better Times (and Big Raises) Haven’t Cured the Inflation Hangover

04/20/2024 New York Times USA

Frustrated by higher prices, many Pennsylvanians with fresh pay raises and solid finances report a sense of insecurity lingering from the pandemic.

UAW wins big at Volkswagen in Tennessee – its first victory at a foreign-owned factory in the American South

04/20/2024 The Conversation USA

Volkswagen workers celebrate in Chattanooga, Tenn., after their bid to join the UAW union prevailed.

Could the Union Victory at VW Set Off a Wave?

04/20/2024 New York Times USA

Some experts say the outcome at a plant in Chattanooga, Tenn., may be organized labor’s most significant advance in decades. But the road could get rockier.

A Bill to Limit Canada’s Trade Negotiators on Farm Goods Edges Nearer to Law

04/20/2024 New York Times USA

The measure from a member of the Bloc Québécois would ban changes to the supply management system for dairy, poultry and eggs.

Start-Up Founder Sentenced to 18 Months in Prison for Fraud

04/20/2024 New York Times USA

Manish Lachwani, who founded the software start-up HeadSpin, is the latest tech entrepreneur to face time in prison in recent years.

VW Workers in Tennessee Vote to Join UAW Union

04/20/2024 New York Times USA

The Volkswagen plant in Chattanooga is set to become the first unionized auto factory in the South not owned by one of Detroit’s Big Three.

FEDS Paper: Corporate Mergers and Acquisitions Under Lender Scrutiny

04/19/2024 Federal Reserve Central banks

Buhui QIu, Teng WangThis paper examines corporate mergers and acquisitions (M&A) outcomes under lender scrutiny. Using the unique shocks of U.S. supervisory stress testing, we find that firms under increased lender scrutiny after their relationship banks fail stress tests engage in fewer but higher-quality M&A deals. Evidence from comprehensive supervisory data reveals improved credit quality for newly originated M&A-related loans under enhanced lender scrutiny.

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