Goldstein, Itay
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Publication Disclosure of Banks’ Stress-Test Results(2013-06-01) Goldstein, ItayThe Dodd-Frank Act requires that the Federal Reserve conduct an annual stress test on large bank holding companies (BHCs) to ensure they have sufficient capital to withstand losses from adverse economic conditions. Eighteen BHCs were subjected to a stress test this year. The stress tests operate on the assumption that providing more information will help impose more discipline on financial institutions. However, the policy of disclosure has some significant disadvantages that need to be addressed in order for financial regulation to be effective.Publication Where Have All the Investment Dollars Gone? A Brief on the Developments and Potential Fragility in Corporate Bond Funds(2015-07-01) Goldstein, ItaySince the beginning of the global economic crisis, investors have flocked to bond funds, and especially corporate bond funds, viewing them as the “safest” vehicles for their capital. However, bond funds are subject to fragilities originating from the first-mover advantage problem: when investors cash out, the cost of compensating them amplifies the funds’ price decline, making it costlier for other investors to remain. Moreover, three other conditions—general market illiquidity, lower fund liquidity, and the prevalence of retail investors—accentuate the financial fragility of corporate bond funds. Academic research shows that when corporate bond fund managers have to trade illiquid corporate bonds after investors redeem shares en masse, the subsequent demand shock in the secondary bond market results predictably in significant negative effects to the real economy. This brief looks at the fragility of corporate bond funds and offers policy options to combat these conditions and mitigate their wider effects.