Tag: Federal Reserve



The formal programming of the immersion course in Washington DC began at the Brookings Institution on May 23. Ian Dubin, Associate Director of Brookings Executive Education, the partnership of the Brookings Institution and Olin Business School, welcomed and introduced us to the long history between the Brookings Institution and Washington University. Philanthropist Robert S. Brookings, the founder of Brookings Institution, was also president of the WashU Board of Trustees from 1895 to 1928. Besides devoting his time, Mr. Brookings also gave his fortune, and later his personal estate, to revitalize the university. It immediately reminded us of Brookings Hall and the Brookings Quadrangle back on campus in St. Louis.

The first guest speaker of the day was a correspondent for The New York Times and an author. He briefed us on the political situation in Washington D.C. under the current administration; he saw it as an interesting time in current American politics, especially because one party controlled the the White House, the Senate, and the House of Representatives at the same time. The Trump administration is seeking a wide range of changes in tax policy, health care policy, and global trade. The speaker also discussed the vital role that automation will play in the US manufacturing industry, offering us another way to think about the future of manufacturing in the US. Later, the Q&A session also covered topics such as over regulation/deregulation, the tax cut, and budget cuts.

Next, we learned from an individual with an impressive resume in academia, high levels of government, and financial institutions. She first gave us a brief introduction to the role of the Council of Economic Advisers (CEA), which is to provide academic views and economic insight on current micro economic and macroeconomic trends to the White House. She then shared with us more insights about serving as an economist with the CEA on a daily basis. Primarily, her role had four responsibilities: consulting on policy process to get certain legislation to pass Congress, advising the President by briefing and writing memos of pros and cons of relevant issues, updating the President on recent research, and providing external reports on certain economic events. She felt honored that their work was highly valued by the President since he incorporated their thoughts into his thinking. Overall, her speech was inspiring and insightful.

After lunch, our next speaker was a fellow in Economic Studies at the Brookings Institution, where he focuses on financial regulation and technology, macroeconomics, and infrastructure finance and policy. Today’s speech was focused on the Dodd-Frank Act, which he has worked on significantly. The act promotes financial stability, accountability, and transparency in the financial systems. He then discussed Dodd-Frank’s significant impacts on the financial regulatory environment, and the balance between economics of scopes and scale and the added costs brought by the Act. Also, he mentioned the fact that the current administration is attempting to roll back certain components of the Dodd-Frank Act and the rationale behind it.

Our speaker then introduced the history of American financial regulations, ranging from Glass-Steagall Act (1933), Community Reinvestment Act (1977), Sarbanes-Oxley Act Section 404 (2002), to the Volcker Rule (2010). During the Q&A session, he answered one of the student’s questions and talked a little about the geographical distribution of the US population and its regional features.

With the evolution of the influence of the Federal Reserve on financial markets and the implications of the Federal Reserve’s actions on the US economy currently being significant, our final speaker was perhaps the best person to provide insight on the institution. She has a significant history with the Federal Reserve, and continues to monitor it closely. With the U.S. economy in its 8th year of recovery, monetary policy having clearly been effective in the recovery process, is currently not particularly controversial. However, it is expected that over the next 12 months, the Federal Reserve may look to make a couple of small increases in short-term interest rates and attempt to reduce the large size of the Fed’s balance sheet, which is primarily due to the quantitative easing during the Global Financial Crisis (2008).

In a forward-looking view on the U.S. economy, our speaker held a positive view on where things are currently heading. However, she highlighted four significant challenges the country faces moving to the future: the aging workforce, climate change, looming federal debt, and income inequality. She also shared how the Clinton administration was able to generate a fiscal surplus, primarily due to the complementary work done by monetary and fiscal policy.

To conclude her speech, she addressed the causes leading into the Global Financial Crisis and the lessons they had learned or probably should have learned from the Asian Financial Crisis (1997). With the four speakers of the day providing us with insight on a diverse set of topics, we left Brookings for the day only to look forward to what awaits us the next day.

Guest Bloggers: Xin Hu, Krishna Chaitanya Mutya, Hanyi Zhou, Bingjie (Zoe) Zou (GMF 2017)

This is a series of blogs chronicling the experiences of 42 Global Master of Finance (GMF) dual degree students during their two week immersion course in New York and Washington, DC. Each blog will be written by a small subset of students during their experience. Names of speakers and presenters at firms are anonymous at the request of the firms and course organizers.

Photo: President Obama signs the Dodd-Frank Act in 2010.




We were fortunate enough to begin the morning of May 17 with a speaker from Waterfall Asset Management–the visit had been rescheduled from Monday. The incident that had occurred on Monday was able to serve as an interesting case study of sorts for us. Our speaker had placed a bid for a product, but his bid had been only the second- highest submitted. He explained to us both the positive and negative lessons to be learned from this incident. The first lesson is that, in certain instances, being second best only signifies that one is the best loser. He did clarify, however, that this does not always hold true. To paraphrase him, the person who graduates last from medical school is still referred to as “Doctor.” The second lesson is that it is sometimes advantageous to lose. The entity that had outbid him for the product had done so by a wide margin. As this was the case, the entity should probably reassess the risk profile of the product that they purchased. As no other entity thought it was even close to the value as they did, it is probably riskier and worth less than what was paid for it.

Most importantly, we learned about the mindset that finance professionals should approach their careers with. The speaker stressed the significance of humility and gratitude and how those virtues remain the guiding lights that have allowed him to achieve both great professional and personal success. It was inspiring to see that there truly are those who maintain such strong moral fiber in a profession which is so often (and sometimes falsely) accused of being bankrupt.

Finance professionals rely on objective and timely information to make significant investment decisions in their business. We were honored to hear from a journalist from The Wall Street Journal, the most popular and probably most profitable newspaper in the finance field, that virtually every successful professional reads every day. The speaker introduced to us how the Journal gathers all kinds of resources to form an objective and independent reporting about the market to inform the world of finance.

In the afternoon, we departed for the New York Federal Reserve Bank on Wall Street, and there we had an insightful tour of not only the history of Federal Reserve System, but also its structure and functionality as the central banking system of the United States. Essentially, the Federal Reserve System, founded in 1913, is created to tackle the issues of financial panics. The system is composed of twelve regional banks located in a variety of cities in the U.S., such as St. Louis, Cleveland, New York, and so forth. When the board of governors of the Federal Reserve System along with the 12 presidents of regional federal reserve banks have decided to act on certain mutually agreed monetary policies, the New York Federal Reserve Bank will take the lead in carrying out the monetary policy implementation with all other Federal Reserve Banks.

What’s noteworthy is that the term length of all board members on Federal Reserve Board of Governors is set out to be a staggering 14 years, which is designed to promote independence of the board’s decision making process without being influenced by higher powers of authority.

Since the crisis of 2007, the Federal Reserve has been more conservative in loosening money supply. As time passes, the objectives of the Federal Reserve System appear to have shifted from preventing financial panic to promoting social stability by stabilizing the inflation rate and maintaining a natural unemployment level. This shift in functionality of the Federal Reserve System is enforced by open market operation, that is, buying and selling of government issued bonds in the open market to control the amount of money in circulation. In addition to OMO, Federal Reserve Banks can adjust policy rate/reserve rate and the interbank interest rate.

The main building of the Federal Reserve Bank of New York, 33 Liberty St., was designed by the architects York and Sawyer. The stones are Indiana limestone and Ohio sandstone. The building’s lowest floor is 50 feet below sea level.

A tour of the New York Federal Reserve Bank has provided us a different perspective on how we ought to look at the function of Federal Reserve as well as its monetary policy.

Later in the afternoon, we visited the Museum of American Finance, which features exhibits on the financial markets, currencies, banking history, and more. It unfolds the development of the market from different perspectives through diverse exhibitions.

For example, there’s a collection of used forms of currency and payment instruments, from coins to point-of-sale (POS) machines and Square magnetic stripe readers. The history of coins extends from antiquity to the present and has witnessed the ups and downs of economic history. Additionally, the new forms of payment methods such as the Square reader has carried more convenience into daily businesses, and it reflects the transformation that advanced technology and innovation have brought in recent decades.

We also saw the exhibition of high currency notes. Money serves as a medium of exchange and has value embedded. Therefore, turbulence in politics and economics could be reflected in unusual currencies such as inflationary currency. For instance, the Federal Reserve issued $100,000 gold certificates in 1934 in the aftermath of World War II.

Moreover, there are photographs showing the old exchange floor and the booth that was used before the implementation of the electronic trading system. However, no matter how the trading system has been upgraded, the passion and energy on Wall Street has never changed, and will continue to play an important role in American and global finance.

At nightfall, we gathered around on the 27th floor Terrace, chatting with each other and appreciating the view of flourishing New York. During the event, many exquisite dishes and drinks were provided and everyone enjoyed themselves. Among those in attendance were WashU alumni who are financial industry talents who shared plenty of valuable career advice and their work experience with us. It was great to have a roof top talk with alums of all ages today.

One alumna with whom we networked today got both her undergraduate and master’s degrees from WashU. She was a former Ernst & Young consultant and is now in a 15-year-old startup consulting firm based in New York City. Talking to her was rewarding. She generously shared information about consulting careers and her daily work content. Learning new knowledge efficiently and fast is one of the core qualities of being a consultant, and researching and knowing clients’ industries are a very important step of showing respect and professionalism to the clients. She also offered a job opportunity from the company in which she is currently working. However, she responsibly stressed that any of us who wants to apply for this job must be truly interested in a career in consulting instead of treating it as a stepping stone to other careers. Most of us had a great time at this event, and it was honorable for us to meet the alumni and learn from them.

Guest Bloggers: Jingyi Duan, Sheng Jin, Jie Tang, Lingfeng Zhu (GMF 2017)

This is a series of blogs chronicling the experiences of 42 Global Master of Finance (GMF) dual degree students during their two week immersion course in New York and Washington, DC. Each blog will be written by a small subset of students during their experience. Names of speakers and presenters at firms are anonymous at the request of the firms and course organizers.




New research from Olin may redeem and restore the word “bailout” that became a dirty word during the 2008 financial crisis, according to Dave Nicklaus, columnist at the St. Louis Post-Dispatch.

“Jennifer Dlugosz, assistant professor of finance at the Olin Business School, and two co-authors looked at a pair of Federal Reserve programs that were pumping $221 billion a day into banks at the height of the crisis.

What they found should be heartening for the Fed and its defenders: For each dollar in emergency support, large banks lent an additional 60 cents and small banks lent 30 cents.”    Link to St. Louis Post Dispatch.

Nicklaus also notes, “The names of banks that took emergency loans used to be secret, but two news organizations sued and forced the Fed to disclose the recipients. Dlugosz believes her study is the first to use the resulting data.”




During the financial crisis from 2007-09, the U.S. Federal Reserve took drastic steps to ensure that banks had access to liquidity so they could continue lending. It extended the maturity of loans available through its Discount Window from overnight to 90 days, and established the Term Auction Facility, which offered similar funding through a series of special auctions.  Banks borrowed from these facilities to the tune of a staggering $221 billion per day during the crisis.

For the first time ever, Olin Professor Jennifer Dlugosz and her co-researchers, were able to examine data from the crisis to show how the Fed can effectively assist banks in times of financial uncertainty. No matter the program or the bank size, this infusion of liquidity spurred lending that ultimately reached homes and businesses, thereby benefiting the economy, the researchers found in their analysis.

Jennifer Dlugosz, assistant professor of finance at Olin Business School

Jennifer Dlugosz, assistant professor of finance at Olin Business School

“Perhaps contrary to popular beliefs, our research shows that the Fed’s actions were effective in encouraging banks to lend. This suggests that the credit crunch we witnessed could have been a lot worse in the absence of these facilities,” said Jennifer Dlugosz, assistant professor of finance at Olin Business School, and former economist at the Board of Governors of the Federal Reserve System.

Dlugosz — along with co-authors Allen Berger, professor of banking and finance at the University of South Carolina, Lamont Black, assistant professor of finance at DePaul University, and Christa Bouwman, associate professor of finance at Texas A&M University — analyzed data about the banks that took part in the Fed’s financial crisis programs. In the past, the information had not been released due to concerns about the stigma associated with accepting the assistance. However, the data became public in 2010 after media outlets Bloomberg News and Fox Business Network filed a Freedom of Information Act request.

“No one has been able to look at this question before, because the data weren’t available,” Dlugosz said. “This is the first time in history that detailed data on the individual loans has been made public.”

During the course of their research, Dlugosz and her co-authors found a total of 20 percent of small U.S. banks and 62percent of bigger U.S. banks — more than 2,000 in all — used the Discount Window or the Term Auction Facility at some point during the crisis. The access to liquidity increased bank lending of almost all types. Meanwhile, they found no evidence that banks were making riskier loans.

“We examined whether or not the Discount Window and the Term Auction Facility helped encourage banks to lend during the crisis,” Dlugosz said. “We find that it did. It looks like one extra dollar in liquidity support from the Fed to a bank results in somewhere between 30 to 60 cents in additional lending by the bank, depending on its size.

“It wasn’t obvious at the time whether this was going to work. The Fed is a lender of last resort for banks. We already had some idea it was effective in preventing bank failures, but this paper also shows us it can also be useful in encouraging banks to lend.”

The research paper was recently accepted for publication by the Journal of Financial Intermediation.

By: Erika Ebsworth-Goold, WashU The Source



The Federal Reserve voted Dec. 14 to raise interest rates a quarter of a percentage point — the first increase in a  year, and only the second since June 2006. With the post-election Dow surging since Donald Trump’s triumph, many wonder what this move will mean for stocks,  future lending rates and the U.S. economy.

An international economist and financial expert at Washington University in St. Louis said that while the move was widely anticipated, he would have liked to see the Fed postpone an increase until President-elect Trump’s inauguration.

Dean Mark Taylor

Dean Mark Taylor

“Today’s interest rate rise is no real surprise,” said Mark Taylor, dean of Olin Business School and formerly a senior economist at both the International Monetary Fund (IMF) and the Bank of England. “The Fed signaled in September that it wanted to raise rates ‘relatively soon’ but did not want to rock the economic boat just before a contentious election.

“Personally, I would have held fire a little longer, until something more is known about what shape President Trump’s economic policies will take. Combining an interest rate rise with such policy uncertainty is not the best prescription for the economy, in my view.”

Taylor, who became the dean at Olin Dec. 1 after a term as dean at Warwick Business School in England, also is a professor of finance at Washington University. In addition to previously working as a senior economist at the IMF and the Bank of England, Taylor also was a fund manager at BlackRock.

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