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Calming the Panic: Investor Risk Perceptions and the Fed’s Emergency Lending during the 2023 Bank Run
From libertystreeteconomics.newyorkfed.org
In a companion post, we showed that during the bank run of spring 2023 investors were seemingly not concerned about bank risk broadly but rather became sensitized to the risk of only about a third of all publicly traded banks. In this post, we investigate how the Federal Reserve’s liquidity support affected investor risk perceptions during the run. We find that the announcement of the Fed’s novel Bank Term Funding Program (BTFP), and subsequent borrowings from the program, substantially reduced investor risk perceptions. However, borrowings from the Fed’s traditional discount window (DW) had no such effect. The ... (full story)
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