This paper studies the restructuring of financial intermediation in the United States since the 2007-09 financial crisis.
We show that the largest U.S. life insurers have entered private debt markets as banks refocused on commercial banking, against a backdrop of unconventional monetary policies and tighter bank regulations.
Through complex on- and off-balance sheet arrangements, these insurers, many of whom are controlled by private equity firms, are acquiring and deploying vast amounts of annuity capital to capture the illiquidity premium.
The new architecture of the financial system features novel forms of lending.
That said, life insurers have become more vulnerable to an aggregate shock to the corporate sector.
Current Version: February 2020 [PDF] [preliminary and incomplete]
I enjoy the thought-provoking discussion provided by Nate Silver's The Signal and the Noise. It is impressive how advanced forecasting is in some areas, such as meterology, and how artificial intelligence was able to best one of the world's best chess players. How can we integrate the advances of these other fields into economics and finance? The chapter on forecasting in economics is a very difficult read. Leading up to the last recession and financial crisis, some economists were even heralding the end of recessions/financial crises. What can the field do to better predict and prepare for adverse economic outcomes in the future?
Do combined forecasts provide better results? What types of forecast methods should be used to predict economic data?
What methods are most appropriate for determining the optimal forecast model?
How might economists better predict financial crises? What is the connection between the shadow banking, financial intermediaries to the real economy?
How might we better model these channels of the economy and financial sector?
Networks and Interconnectedness in Economics and Finance
Does this concept of contagion appropriately describe the developments in short-term funding markets (repo, asset-backed commercial paper, money market mutual funds, etc.) during the last crisis?
How interconnected is our current financial system? How interconnected are the largest banks/nonbanks?
Which highly interconnected markets could provide the next channel for propagating a shock to the financial system?
Will a smaller number of banks/nonbanks following mergers of the last crisis increase the magnitude of the next financial shock?
Disclaimer: Please kindly note that the views on this page and website are solely my own and should not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System or of any other person associated with the Federal Reserve.
