The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The Outreach and Education function engages, empowers and educates the Second District communities that the Bank serves, especially civic leaders, students, educators, small business owners, policymakers and the general public. It furthers the Bank's commitment to the region by listening to the communities we serve and leveraging our unique attributes to positively impact school and university programs, as well as analysis and research.
We construct a new systemic risk measure that quantifies vulnerability to fire-sale spillovers using detailed repo market data for broker-dealers and regulatory balance sheet data for U.S. bank holding companies. For broker-dealers, vulnerabilities in the repo market are driven by flight-to-quality episodes, when liquidity and leverage can change rapidly. We estimate that an exogenous 1 percent decline in the price of all assets financed with repos leads to losses owing to fire-sale spillovers of 8 percent of total broker-dealer equity on average and over 12 percent during the financial crisis. For bank holding companies, vulnerabilities to fire sales are equally sizable but build up slowly over time. Our measure signals buildup of systemic risk starting in the early 2000s, ahead of many other measures. Our measure also predicts low quantiles of macroeconomic outcomes above and beyond other existing measures, especially at longer horizons.