Fed Working Paper Studies Collapse of Asset Backed Securities Market

This story appeared in Bank Digest.

A working paper released by the Federal Reserve Board entitled “From Wall Street to Main Street: The Impact of the Financial Crisis on Consumer Credit Supply” studies how the collapse of the asset backed securities (ABS) market during the financial crisis of 2007-2009 affected the supply of credit to the broader economy using a new dataset that describes unique interbank relationships within the credit union industry. Authors Rodney Ramcharan, Skander Van den Heuvel and Stephane Veranith find ABS related losses at correspondent credit unions to be associated with a large contraction in the supply of consumer credit and a hoarding of cash among downstream credit unions, suggesting that capital regulation might shape the ability of financial institutions to transmit securities price volatility onto the real economy.