Suchergebnisse

In the wake of the financial crisis, the Dodd–Frank Act established the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR) to address the concern that policymakers lacked sufficient data to anticipate emerging threats to financial stability. Although most discussions about systemic risk have focused on the private sector, the U.S. Federal Government is the world's largest and most interconnected financial institution, and through its activities — as a banker, rule-maker and regulator — represents a major source of systemic risk. This paper makes the qualitative and quantitative case that the government is a significant source of such risks, discusses the nature of the risks and offers suggestions for how the OFR, through its data initiatives and analyses, could help illuminate and mitigate those risks.

Governments play a central role in the allocation of capital and risk in the economy. Evaluating the cost to taxpayers of government investments requires an assumption about the government's cost of capital. Governments often take their borrowing rate to be their cost of capital, which implicitly treats the market risk associated with their activities as having no cost to taxpayers. This article reviews the theoretical and practical rationale for treating market risk as a cost to governments, presents an interpretive review of the growing literature that applies the concepts and tools of modern finance to evaluating the costs of government policies and projects and suggests directions for future research. Examples considered include deposit insurance, Fannie Mae and Freddie Mac, the Federal Reserve's emergency lending facilities, student loans, real infrastructure investments, and public pension plans.

The federal government makes credit for higher education widely available at subsidized prices through its student loan programs. A loan provision that at times has significantly increased the size and volatility of the subsidies is the consolidation option, which allows borrowers to convert floating rate loans to fixed rate loans, often on very favorable terms. The option provides a novel setting in which to study how unsophisticated borrowers respond to financial incentives. We develop a model to evaluate the option's cost to the government, and find that the ex-ante cost of the option ranged from 0.8% to 6.4% of loan principal between 1998 and 2005. Using a sample of 700,000 student loan records, we find that borrowers responded to the time-varying incentives to consolidate although some left sizeable amounts of money on the table; that more indebted borrowers were more likely to optimize; and that there is some evidence of learning over time.