The liquidity-coverage ratio (LCR) requires banks to hold enough liquidity to withstand a 30-day run. We study the effects of the LCR on broker-dealers, the financial intermediaries at the epicenter of the 2007–2009 crisis. The LCR brings some financial-stability benefits, including a significant maturity extension of triparty repos backed by lower-quality collateral, as well as the accumulation of larger liquidity pools. However, it also leads to less liquidity transformation by broker-dealers. We also discuss the liquidity risks not addressed by the LCR. Finally, we show that a major source of fire-sale risk was self-corrected before the introduction of postcrisis regulations.

During a flight to liquidity, investors demand large amounts of governmentbacked safe assets in a rush. The sluggish reaction of the public supply of safe assets opens up a role for government-sponsored shadow banks. We exploit exogenous changes in both demand and supply of safe assets from the 2014 money fund reform and the 2015 debt limit. We find that shadow banks act as a substitute as well as a complement to public supply during a flight to liquidity. Our findings carry over to the dash for cash at the onset of the Covid-19 pandemic.

We show that international portfolios reflect the underlying heterogeneity in investors’ beliefs. Using data on the foreign sovereign debt holdings of European banks matched with their forecasts on future bond yields, we find that expecting higher returns and having more accurate forecasts are associated with larger bond holdings. Crucially, the elasticity of portfolio holdings to expected returns is increasing in the precision of the forecast, implying that investors optimally exploit comparative advantages in information production. We rationalize the results in a model in which partial information specialization arises endogenously by introducing a degree of unlearnable uncertainty about asset payoffs.

During the 2008 financial crisis, the Federal Reserve established two emergency facilities for broker-dealers: one provided collateralized loans; the other, collateral upgrades. These facilities alleviated dealers’ funding pressures when access to repos backed by illiquid collateral deteriorated. The ability to upgrade collateral allowed dealers to continue funding their own illiquid inventories (avoiding potential firesales) and to provide better bond market liquidity. It also helped sustain dealers’ credit to hedge fund clients, which in turn posted relatively better returns.

We empirically show the dynamics of information production and information sensitivity of bank debt around the Great Recession. As more precise information is produced at the onset of the crisis, bank debt becomes informationally sensitive, along two separate dimensions. First, precise information amplifies the effect of market expectations on default risk; second, for banks that are already expected to perform poorly, more precise information further increases default risk. Both effects are muted in good times. Overall, our findings are consistent with information-based models of financial crises.

To safeguard its technological leadership, the U.S. has restricted domestic suppliers from exporting cutting-edge technologies to selected Chinese firms. Domestic firms affected by these export controls halt sales to Chinese customers, as intended, but struggle to establish new relations with alternative customers domestically or in politically aligned regions. Consequently, domestic suppliers experience sizable losses in market capitalization, along with reductions in profitability, employment, and bank lending. Chinese firms are more proactive in reconfiguring supply chains, though not without costs. Overall, export controls impose larger costs on U.S. firms developing the very technologies these policies aim to protect.

This paper examines the supply chain effects of the most damaging cyberattack in history so far. The attack propagated from the directly hit firms to their customers, causing a four-fold amplification of the initial drop in profits. These losses were larger for affected customers with fewer alternative suppliers. Internal liquidity buffers and increased borrowing, mainly through bank credit lines, helped firms navigate the shock. Nonetheless, the cyberattack led to persistent adjustments to the supply chain network, with affected customers terminating trading relations with directly hit firms and forming new ones with alternative suppliers with a stronger cybersecurity posture.

Liquidity restrictions on investors, like the redemption gates and liquidity fees introduced in the 2016 money market fund (MMF) reform, are meant to improve financial stability. However, we find evidence that such liquidity restrictions exacerbated the run on prime MMFs during the COVID-19 crisis. Our results indicate that gates and fees could generate strategic complementarities among investors in crisis times. Severe outflows from prime MMFs led the Federal Reserve to intervene with the Money Market Mutual Fund Liquidity Facility (MMLF). Using MMLF microdata, we show how the provision of “liquidity of last resort” stabilized prime funds.