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on Financial Markets |
| By: | Falk Bräuning; Hillary Stein |
| Abstract: | This brief studies how regulation involving bank capital requirements affects the behavior of bank-affiliated primary dealers in the Treasury market. Specifically, it looks at the potential effects of changes to the supplementary leverage ratio (SLR) requirement, which determines how much capital a bank must hold in relation to its overall exposure, including exposure in its trading assets such as Treasuries. The SLR is a measure of a bank’s ability to absorb losses during periods of financial stress; the Federal Reserve sets a minimum requirement for the SLR to help protect the stability of the banking system by preventing excessive leverage. Our analysis presents evidence that relaxing the SLR constraint—that is, lowering the required SLR—can cause an increase in dealers’ Treasury trading activity, especially among dealers affiliated with more constrained (lower-SLR) banks. This finding implies that the SLR requirement is indeed binding for some banks—that it constrains their Treasury positions to levels they would not otherwise choose. |
| Keywords: | supplementary leverage ratio; Treasury market liquidity; Bank capital regulation |
| JEL: | G10 G12 G18 G21 |
| Date: | 2025–03–04 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbcq:99642 |
| By: | Jack Mandin |
| Abstract: | A flash loan is a special type of uncollateralized loan with zero default risk that is native to blockchain ecosystems. Since its inception in 2018, the technology has seen significant adoption across decentralized finance markets, having facilitated over US$2 trillion in lending activity in 2024 on Ethereum-Virtual-Machine-compatible (EVM-compatible) blockchains. Despite their high levels of adoption, flash loans are not well understood by academics and central bank researchers. I provide a detailed description of flash loans, document their usage across major EVM-compatible blockchains, present key findings from the data, and provide the necessary background and context to motivate further research on the topic. Key results show that flash loans expand access to liquidity and are used by highly sophisticated actors for many practical applications. |
| Keywords: | Digital currencies and fintech; Financial markets |
| JEL: | G0 G1 G2 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocadp:25-06 |
| By: | Shuozhe Li; Zachery B Schulwol; Risto Miikkulainen |
| Abstract: | To the naked eye, stock prices are considered chaotic, dynamic, and unpredictable. Indeed, it is one of the most difficult forecasting tasks that hundreds of millions of retail traders and professional traders around the world try to do every second even before the market opens. With recent advances in the development of machine learning and the amount of data the market generated over years, applying machine learning techniques such as deep learning neural networks is unavoidable. In this work, we modeled the task as a multivariate forecasting problem, instead of a naive autoregression problem. The multivariate analysis is done using the attention mechanism via applying a mutated version of the Transformer, "Stockformer", which we created. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.09625 |
| By: | Mendes, Johnny Silva; Nakamura, Wilson Toshiro; Sanvicente, Antonio Zoratto |
| Abstract: | This paper discusses recent literature about the benefit of debt diversification, which either considers the reduction in the cost of debt or the increase in equity value. We argue that the former, published in Brazil with Brazilian firm data, is not an appropriate goal of debt diversification. We then adapt our analysis to consider the maximization of equity value is the appropriate goal. The proxy for equity value is the price-to-book ratio. We also include the change in equity risk premia over time as an independent variable to explain changes in equity value. This is ignored in the literature in which equity value is the dependent variable. The analysis uses annual data for the 2012-2021period and 158 non-financial firms, employing the estimation of the basic panel data econometric specification with fixed effects. Our results indicate that debt structure policy does not affect market values and that, if anything, it is done to favor creditors’ and/or managers’ interests in contrast with maximizing shareholder wealth. In fact, a significant variable is return on assets, a firm performance indicator that is independent of debt structure or leverage. |
| Date: | 2025–02–25 |
| URL: | https://d.repec.org/n?u=RePEc:fgv:eesptd:572 |