The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The Outreach and Education function engages, empowers and educates the Second District communities that the Bank serves, especially civic leaders, students, educators, small business owners, policymakers and the general public. It furthers the Bank's commitment to the region by listening to the communities we serve and leveraging our unique attributes to positively impact school and university programs, as well as analysis and research.
We argue that the defining feature of large and complex banks that makes their failures messy is their reliance on runnable financial liabilities that confer liquidity or money-like services that may be impaired or destroyed in bankruptcy. To make large bank failures more orderly, we advocate that systemically important bank holding companies be required to issue “bail-inable” long-term debt that converts to equity in resolution. This reassures holders of uninsured liabilities that their claims will be honored in resolution, making them less likely to run. In a novel finding, we show that bail-inable debt and equity are not perfect substitutes in terms of stemming bank runs. Finally, we argue that the long-term debt requirement should be increasing in the amount of uninsured financial liabilities the bank has issued. This has the advantage of tying the requirement to the sources of messy failures, and it tends to internalize the externalities associated with issuance of uninsured financial liabilities.