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Federal Reserve Bulletin, 265
Federal Reserve notes, 215
Federal Reserve System (the Fed), 31t,
191–212
accountability of, 210–11
AIG and, 177, 530
asset-price bubbles and, 243–45
assets, 214, 216, 376
balance sheet, 214–17
bank borrowings from, 401, 407
Bear Stearns and, 177
Board of Governors, 193, 194, 196,
197, 200, 202–3, 376, 445
bureaucratic behavior of, 207–8
chairman of Board of Governors, 200,
201–2
commercial paper and, 268–69
communication strategy, 209
Congress and, 202–3, 209–11
consumer protection and, 436, 448
directors, 194–95
discount lending, 217
discount window, 226–27
dual mandate of, 236
establishment of, 192, 212, 456
European System of Central Banks
and, 204
examination by, 434
federal (fed) funds, 264–66
Fed watchers, 249–50
financial crisis of 2007–2009 and, 176,
220, 229–30, 427–28
Flow of Funds Accounts, 84
foreign exchange interventions by,
375–77
founders of, 192
housing prices and, 174
independence of, 202–3, 208–11, 212
inflation and, 184, 186, 209
inflation targeting and, 237n, 241, 242
interest on reserves paid by, 220
interest rate restrictions, 33
as lender of last resort, 227–28,
392, 394
liabilities, 214, 215–16, 376
margin credit and, 554
member banks, 196
monetary policy and, 6, 191, 195
Monetary Policy Report to the
Congress, 203
money markets and, 258, 259t
open market operations, 195, 196,
216–17
operating procedures, 223
origins of, 192–93
policy tools, 193f
regulatory responsibility, 457
repurchase agreements (repos) and,
266–67
research staff, 198
risk management and, 434
structure of, 192, 193–200, 193f, 212
subprime mortgage loans and, 364, 438
unsterilized foreign exchange
intervention by, 376, 377, 377n
U.S. banking overseas and, 485
U.S. Flow of Funds report, 35
Fed watchers, 249–50
Fee income, banks, 414
FICO scores, 329, 339
Finance charges, disclosure of, 436
Finance companies, 27t, 28t
defined, 29–30
money markets and, 260
Financial crises, 163–89. See also foreign
exchange crises
in advanced economies, 164–78
agency theory and, 163, 164
I-8
Index
in Argentina, 384
asymmetric information and, 164
banking crisis stage, 167–68
causes of, 163, 164–67, 188
currency crises and, 181–82, 183,
186–87
debt deflation stage, 168
defined, 6, 163, 164
in East Asia, 392–94
in emerging market economies, 178–88
government safety nets and, 166
initiation stage, 164–67, 178–81
in Mexico, 392, 393
portfolio insurance and, 603
program trading and, 603
savings and loan and banking crisis of
1980s, 443–44
stages of, 164–68, 165f, 178–83,
179f, 188
Financial crisis of 2007–2009, 171–73
asset-price bubbles and, 243
asymmetric information and, 172
causes of, 171–72, 188
consumer protection and, 436, 438
credit crunch and, 413
credit rating agencies and, 158, 172
discount rate and, 229
effects of, 172–73
Federal Reserve and, 220, 229–30,
427–28
Gordon growth model and, 314–15
investment banks and, 481
in Ireland, 176, 177
lender of last resort and, 229–30, 428
mark-to-market accounting and, 437
mortgage markets and, 171–72
principal-agent problem and, 438
severity of, 163
Financial derivatives, 449, 590–620
concerns about, 618–19, 620
credit derivatives, 616–19
defined, 590
financial futures markets, 593–601
foreign exchange risk and, 601–2
forward contracts, 601–2
forward markets, 591–93
futures contracts, 602
hedging with, 590–619
interest-rate risk and, 459
interest-rate swaps, 613–16
options, 606–13
stock index futures, 603–5
subprime mortgage crisis and, 618–19
Financial engineering, 171, 458
Financial futures contracts, 593–97
defined, 593, 619
expiration of, 594–95, 595n
hedging with, 595–96
publication of information about, 594
types of, 598t
Financial futures markets, 593–601
financial futures contracts, 593–97
foreign exchange risk and, 601–2
globalization of, 597–98
liquidity and, 599
success of, 598–601
trading organization in, 597
Financial futures options, 606, 611–13
Financial globalization. See also
international financial systems
defined, 178
financial crises and, 178–80, 179–80
Financial guarantees, for bonds, 293–94
Financial information. See also
asymmetric information
economies of scope, 155
free-rider problem, 141–42
Global Legal Settlement of 2002
and, 159
insider, 556–57
monitoring, 146–47
principal-agent problem and, 146–47
private production and sale of, 141–42
provided by investment analysts,
120–21, 127, 129
regulation of, 30–31, 142, 147, 153
restrictive covenants and, 150
Sarbanes-Oxley Act of 2002 and, 159
stock prices and, 121, 126
stock valuation and, 312–13
Financial innovation, 7, 457–65
adjustable-rate mortgages, 458
for avoiding regulation, 465–69
bank credit and debit cards, 459–60
commercial paper market, 464
decline of traditional banking and,
469–72
electronic banking, 460–61
electronic payment, 461
e-money, 462–64
environment for, 457–58
interest-rate volatility and, 458
money market mutual funds, 466
securitization, 464–65
sweep accounts, 466–67
Treasury strips, 467–69
Financial institutions, 134–61
capital requirements for, 430–31
chartering, 433–34
circumvention of regulations by, 439
compensation of executives, 450
conflicts of interest, 154–60
economic efficiency and, 134
employment by, 8
financial innovation by, 457–65
financial system and, 134–37
foreign exchange rate forecasting and,
366–67
functions of, 543
government safety net and, 428
interest-rate risk management, 573–84
long-term customer relationships held
by, 570–71
managing risk in, 7–8
net worth of, 576–77
on-site examinations of, 433–34
regulation of, 556–57
risk management in, 568–85
screening and monitoring by,
569–70, 571
studying, 8–9
systemic, 448
“too big to fail,” 428–29
Financial Institutions Reform, Recovery,
and Enforcement Act (FIRREA)
of 1989, 442t, 444
Financial instruments, 2, 6, 16, 19. See
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