Nathan Foley-Fisher

The Impact of Unconventional Monetary Policy on Firm Financing Constraints: Evidence from the Maturity Extension Program

This paper investigates the impact of unconventional monetary policy on firm financial constraints using the maturity extension program (MEP). Consistent with bond market segmentation and limits to arbitrage, around the MEPs announcement, stock prices rose for those firms more dependent on longer-term debt. These firms also issued more long-term debt during the MEP and expanded employment and investment. There is also evidence of “reach for yield” behavior, as the demand for riskier corporate debt also increased. Our results suggest that unconventional monetary policy might have relaxed financial constraints for some firms by inducing gap-filling behavior and affecting bond market risk premia.

Self-Fulfilling Runs: Evidence from the U.S. Life Insurance Industry

The interaction of worsening fundamentals and strategic complementarities among investors renders identification of self-fulfilling runs challenging. We propose a dynamic model to show how exogenous variation in firms’ liability structures can be exploited to obtain variation in the strength of strategic complementarities. Applying this identification strategy to puttable securities offered by U.S. life insurers, we find that 40 percent of the

Securities Lending as Wholesale Funding: Evidence from the U.S. Life Insurance Industry

18 billion run on life insurers by institutional investors during the summer of 2007 was due to self-fulfilling expectations. Our findings suggest that other contemporaneous runs in shadow banking by institutional investors may have had a self-fulfilling component.

Capitalising on the Irish land question: land reform and state banking in Ireland, 1891–1938

The existing literature implicitly or explicitly assumes that securities lenders primarily respond to demand from borrowers and reinvest their cash collateral through short-term markets. Using a new dataset that matches every U.S. life insurer’s bond portfolio, as well as their lending and reinvestment decisions, to the universe of securities lending transactions, we offer compelling evidence for an alternative strategy, in which securities lending programs are used to finance a portfolio of long-dated assets. We discuss how the liquidity and maturity mismatch associated with using securities lending as a source of wholesale funding could potentially impair the functioning of the securities market.

Funding Agreement-Backed Securities in the Enhanced Financial Accounts

Land reform and its financial arrangements are central elements of modern Irish history. Yet to date, the financial mechanisms underpinning Irish land reform have been overlooked. The paper outlines the mechanisms of land reform in Ireland and the importance of land bonds to the process. The paper introduces a new database on Irish land bonds listed on the Dublin Stock Exchange from 1891 to 1938. It illustrates the nature of these b onds and presents data on their size, liquidity and market returns. The paper finds a high level of state banking in Ireland: large issues of land bonds were held by state owned savings banks.

Over-the-Counter Market Liquidity and Securities Lending

This note describes new data on funding agreement-backed securities (FABS) that is being provided as part of the Enhanced Financial Accounts (EFA) initiative.

The Impact of Unconventional Monetary Policy on Firm Financing Constraints : Evidence from the Maturity Extension Program

This paper studies how over-the-counter (OTC) market liquidity was adversely affected by the collapse of securities lending during the 2007-2008 financial crisis. We combine micro-data on corporate bond OTC market trades with securities lending transactions, in which life insurance companies are major counterparties. We exploit cross-sectional differences in the corporate bonds that are held and lent by life insurance companies to estimate the causal effect of securities lending on corporate bond market liquidity. We show that the collapse of AIGs securities lending programs in 2008 caused a substantial and long-lasting reduction in the market liquidity of the corporate bonds that were predominantly held by AIG, even after controlling for the interaction between funding liquidity and market liquidity. We find that some of the increase in the illiquidity of bonds held predominantly by AIG can be attributed to a sharp increase in relatively small trades among a greater number of dealers.

U.S. Real Interest Rates and Default Risk in Emerging Economies

This paper investigates the impact of unconventional monetary policy on firm financial constraints. It focuses on the Federal Reserve’s maturity extension program (MEP), intended to lower longer-term rates and flatten the yield curve by reducing the supply of long-term government debt. Consistent with those models that emphasize bond market segmentation and limits to arbitrage, around the MEP’s announcement, stock prices rose most sharply for those firms that are more dependent on longer-term debt. These firms also issued more long-term debt during the MEP and expanded employment and investment. These responses are most pronounced for those firms that are larger and older, and hence less likely to be financially constrained. There is also evidence of “reach for yield�? behavior among some institutional investors, as the demand for riskier corporate debt also rose during the MEP. Our results suggest that unconventional monetary policy might have helped to relax financial constraints for some types of firms in part by inducing gap-filling behavior and affecting the pricing of risk in the bond market.