Читать книгу The Foreign Exchange Matrix - Barbara Rockefeller - Страница 34

The Kansas City Federal Reserve Bank describes its FSI as “a monthly measure of stress in the US financial system based on 11 financial market variables.” These variables are: the three-month LIBOR/T-Bill spread (TED spread), the two-year swap spread, off-the run/on the run 10-year Treasury spread, Aaa/10-year Treasury spread, Baa/Aaa spread, high-yield bond/Baa spread, consumer ABS/5-year Treasury spread, the negative value of correlation between stock and Treasury returns, the implied volatility of overall stock prices (VIX), idiosyncratic volatility (IVOL) of bank stock prices, and a cross-section dispersion (CSD) of bank stock returns. “A positive value indicates that financial stress is above the long-run average, while a negative value signifies that financial stress is below the long-run average.” ^[6]

The Kansas City Fed explains the root causes of financial stress as arising from:

 increased uncertainty about fundamental value of assets

 increased uncertainty about behaviour of other investors

 increased asymmetry of information

 decreased willingness to hold risky assets (flight to quality)

 decreased willingness to hold illiquid assets (flight to liquidity)

In discussing the uncertainty about the fundamental value of assets, the Kansas City Fed observed that financial innovations can “make it difficult for lenders and investors to even assign probabilities to different outcomes. This kind of uncertainty, in which risk is viewed as unknown and unmeasurable, is often referred to as Knightian uncertainty.” As example of financial innovation, the Fed pointed to “complex structured products such as collateralised debt obligations (CDOs) in the recent subprime crisis, or program trading in the Long-Term Capital Management crisis of 1998.”

On the issue of transparency the Kansas City Fed stated, “asymmetry of information is said to exist when borrowers know more about their true financial condition than lenders, or when sellers know more about the true quality of the assets they hold than buyers.” These information gaps can “lead to problems of adverse selection or moral hazard, boosting the average cost of borrowing for firms and households, and reducing the average price of assets on secondary markets.”

In the past 15 years, the KCFSI flashed warning signals on several occasions. See Figure 2.4. In the period from October 1998 to October 2002, the KCFSI saw six distinct peaks in a short period of time. The index peaked in the wake of the Russian debt moratorium in August 1998 and the bailout of Long-Term Capital Management in September 1998, and then peaked in October 1999 ahead of Y2K.

Figure 2.4 – Kansas City Fed Stress Index (monthly)

Source: research.stlouisfed.org/fred2

In 2000, the KCFSI peaked twice, first in line with the bursting of the technology bubble and subsequent sharp NASDAQ Composite decline and then again later in the year. “The second peak was December 2000, when there were no obvious reasons for increased financial stress other than the approach of recession. The next peak came after the 9/11 attacks and the most recent peak came in October 2002, amidst widespread accounting scandals (Enron/World Com).

During the subprime crisis, the KCFSI has spiked on a few occasions, first in response to mortgage-related concerns in August and November 2007, and then again in March 2008, when Bear Stearns collapsed. Later in July 2008, the index again spiked when IndyMac failed and Fannie Mae and Freddie Mac had their issues. The following year saw the largest spikes seen ever in the index, first in September 2008, following the Lehman Brothers bankruptcy, AIG bailout, and forced merger of some institutions (such as Bank of America and Merrill Lynch). The index spiked again in October 2008 amidst debate about the $700 billion Troubled Asset Relief Program (TARP).

To give a sense of magnitude of the moves, the Kansas City Financial Stress Index peaked at 5.57 in October 2008 (after Lehman Brothers bankruptcy and around the TARP debate) and remained elevated (at 4.68) at year-end. In the first quarter of 2009, despite wider deleveraging of positions in equities and commodities, the index edged lower (3.99 in March). By August 2009, the KCFSI had dipped below 1.0 and has remained below there ever since, even slipping into negative territory on several occasions in 2010, 2011 and 2012.