We develop a tractable model of banks' liquidity management with an over‐the‐counter interbank market to study the credit channel of monetary policy. Deposits circulate randomly across banks and must be settled with reserves. We show how monetary policy affects the banking system by altering the trade‐off between profiting from lending and incurring greater liquidity risk. We present two applications of the theory, one involving the connection between the implementation of monetary policy and the pass‐through to lending rates, and another considering a quantitative decomposition behind the collapse in bank lending during the 2008 financial crisis. Our analysis underscores the importance of liquidity frictions and the functioning of interbank markets for the conduct of monetary policy

We study European banks' demand for short-term funds (liquidity) during the summer 2007 subprime market crisis. We use bidding data from the European Central Bank's auctions for one-week loans, their main channel of monetary policy implementation. Our analysis provides a high-frequency, disaggregated perspective on the 2007 crisis, which was previously studied through comparisons of collateralized and uncollateralized interbank money market rates which do not capture the heterogeneous impact of the crisis on individual banks. Through a model of bidding, we show that banks' bids reflect their cost of obtaining short-term funds elsewhere (e.g., in the interbank market) as well as a strategic response to other bidders. The strategic response is empirically important: while a naïve interpretation of the raw bidding data may suggest that virtually all banks suffered an increase in the cost of short-term funding, we find that, for about one third of the banks, the change in bidding behavior was simply a strategic response. We also find considerable heterogeneity in the short-term funding costs among banks: for over one third of the bidders, funding costs increased by more than 20 basis points, and funding costs vary widely with respect to the country-of-origin. The funding costs we estimate using bidding data are also predictive of market- and accounting-based measures of bank performance, reinforcing the usefulness of “revealed preference” information contained in bids

We develop a model of banking industry dynamics to study the quantitative impact of regulatory policies on bank risk‐taking and market structure. Since our model is matched to U.S. data, we propose a market structure where big banks with market power interact with small, competitive fringe banks as well as non‐bank lenders. Banks face idiosyncratic funding shocks in addition to aggregate shocks which affect the fraction of performing loans in their portfolio. A nontrivial bank size distribution arises out of endogenous entry and exit, as well as banks' buffer stock of capital. We show that the model predictions are consistent with untargeted business cycle properties, the bank lending channel, and empirical studies of the role of concentration on financial stability. We find that regulatory policies can have an important impact on banking market structure, which, along with selection effects, can generate changes in allocative efficiency and stability

We develop a model of the market for federal funds that explicitly accounts for its two distinctive features: banks have to search for a suitable counterparty, and once they meet, both parties negotiate the size of the loan and the repayment. The theory is used to answer a number of positive and normative questions: What are the determinants of the fed funds rate? How does the market reallocate funds? Is the market able to achieve an efficient reallocation of funds? We also use the model for theoretical and quantitative analyses of policy issues facing modern central banks

We present a model of the relationship between real interest rates, credit spreads, and the structure and risk of the banking system. Banks intermediate between entrepreneurs and investors, and can monitor entrepreneurs projects. We characterize the equilibrium for a xed aggregate supply of savings, showing that safer entrepreneurs will be funded by nonmonitoring banks and riskier entrepreneurs by monitoring banks. We show that an increase in savings reduces interest rates and spreads, increases the relative size of the nonmonitoring banking system and the probability of failure of monitoring banks. We also show that the dynamic version of the model exhibits endogenous boom and bust cycles, and rationalizes the existence of countercyclical risk premia and the connection between low interest rates, credit spreads, and the buildup of risks during booms

How much capital should financial intermediaries hold? We propose a general equilibrium model with a financial sector that makes risky long‐term loans to firms, funded by deposits from savers. Government guarantees create a role for bank capital regulation. The model captures the sharp and persistent drop in macro‐economic aggregates and credit provision as well as the sharp change in credit spreads observed during financial crises. Policies requiring intermediaries to hold more capital reduce financial fragility, reduce the size of the financial and non‐financial sectors, and lower intermediary profits. They redistribute wealth from savers to the owners of banks and non‐financial firms. Pre‐crisis capital requirements are close to optimal. Counter‐cyclical capital requirements increase welfare

2019 THROUGH MID-2020 SAW A PERIOD in which management decisions made by the Executive Committee the previous two years began to produce positive financial results, leaving the Econometric Society in its strongest financial position yet. The new royaltybased contract with Wiley Publishers combined with membership fee enhancements, robust membership drives, and solid investment returns even during a tumultuous market, put the Society in good shape to weather any future challenges. The new contract between Wiley and the Econometric Society went into effect in 2019. In 2019, the Society earned total institutional journal revenues of $721,383 compared to $698,010 the previous year. However, both figures include deferred revenues no longer accruing as a result of the new royalty-based contract. For 2019, real institutional publishing revenues came to $509,613 for the first full year under the new contract while $211,770 in deferred revenues was carried over from previous years. In exchange, henceforth Wiley will cover the cost of printing, distributing and disseminating the Econometric society journals. Unfortunately, 2019’s promising year-end results are unlikely to continue through 2020 given the onset of COVID-19. Universities and research centers’ libraries (all of which make up the bulk of institutional sales) all project no or very low growth for the remainder of 2020 so future institutional revenues are expected to compress. Membership revenues fared well too. In 2019, the Society added additional subscription rate options to its membership categories; increased rates across all categories; and for the first time added an auto-renew option for membership purchases. As a result of these changes, the number of year-end memberships (see the Secretary’s report for membership statistics) and total membership revenues increased substantially. Membership revenues jumped from $585,349 at end-of-year 2018 to $680,253 at end-of-year 2019, an increase of $94,904. The Society continued its relationship with Wells Fargo for its day-to-day banking and credit card processing, and with Vanguard to manage its investments. At the same time, the Society’s Investment Committee adjusted its investment strategy and saw gains emerge. By end-of-year 2019, the Society’s Central office investment holdings rose from end-of-year 2018 holdings of 2,357,604 to 2019 end-of-year holdings of $3,331,812, although part of the increase resulted from the transfer of $500,000 from Wells Fargo. The regional account totals, however, went from 2018 combined holdings of $613,413 to 2019 end-of-year holdings of $544,590. While the European region holds the majority of regional funds, Africa, Asia, Australasia, and Latin America’s regional accounts are subsidized by annual grants available to help with activities for young economists. A fundraising initiative for young African scholars was launched in June 2019, bringing in close to $30,000 through generous donations from the Society’s fellows and general membership base. The Society will continue to grow its Fund for African Scholars. The