Tag: Federal Reserve



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.

CATEGORY: News



After a whirlwind week in New York, we headed south to Washington, D.C. to immerse ourselves in the workings of government and financial regulation with Olin’s Brookings Executive Education (BEE) team as our guide. The day started with welcoming remarks and introductions from Ian Dubin, Associate Director, and Chris Mancini, Program Coordinator. They explained the general agenda for the week, and the long and special history between the Brookings Institution and Washington University in St. Louis.

Day 6 - Brookings Ian DubinAfter the brief introduction, Mr. Dubin gave us an overview about the basic structures of U.S. government and legislative processes to set the stage for the week. He explained the unique roles of the Executive Branch, Senate and House of Representatives, and the complexity of the legislative process.

We also learned about the Brookings think tank and how it contributes to making public policy. The Brookings Institution is one of the most important and influential public policy research think tanks in the world.

The rest of the day was spent learning more about the various key financial sector regulators as well as learning directly from current and former regulators from both the Department of the Treasury and the Federal Reserve.

First, we learned from David Wessel, who is the Director of the Hutchins Center on Fiscal and Monetary Policy. He briefly explained the function of the United States Financial Stability Oversight Council (FSOC), and also introduced 10 micro-prudential regulators in the system, such as the Federal Deposit Insurance Corporation (FDIC), Securities and Exchange Commission (SEC), and The Federal Reserve, to name a few. Although the FSOC provided the chairperson of each of the 10 agencies with the opportunity to communicate with each other, he stated that those 10 chairs have different missions and have issued regulations on financial institutions (banks) that are conflicting. This resulted in banks having a hard time fulfilling the requirements outlined by different regulators. He also touched upon the importance of Macro-Prudential Regulation (FSOC role), and highlighted the differences between finance and other industries, especially in terms of contagion risk. Last but not the least, he compared the FSOC structure with that of the Bank of England.

Winthrop Hambley speaks to Olin students during their visit with Brookings Executive Education.

Winthrop Hambley speaks to Olin students during their visit with Brookings Executive Education.

Our last speaker of the day was Winthrop Hambley, former Senior Advisor, Board of Governors, The Federal Reserve. He first introduced the structure of the Federal Reserve and its key monetary policy-making body, the Federal Open Market Committee (FOMC).

He then proceeded to explain to us both traditional monetary policies as well as non-traditional monetary policies, which were introduced after the financial crisis–namely, large scale asset purchases, forward guidance, and maturity extension.

Last but not least, to address the popular topic of the Fed rate hike expectation, he spent some time explaining to us the rate normalization process and considerations during Q&A.

This is part of a series of blogs chronicling the experiences of 41 Global Master of Finance (GMF) dual degree students during their two week long immersion course in New York and Washington, DC. Each blog will be written by a small subset of students during their experience.


Last week, Federal Reserve Chair Janet Yellen sounded a cautious note to House and Senate committees, saying that financial conditions in the U. S. have recently become less supportive of growth.

(more…)