Board of Governors of the Federal Reserve System

Figure 1: Composition of Bank Securities Portfolios
Percent

Year	Treasury securities	Agency securities	MBS pass-throughs	CMOs and CMBS	Other
1994	0.28	0.07	0.26	0.20	0.18
1995	0.23	0.11	0.29	0.18	0.20
1996	0.20	0.11	0.33	0.16	0.21
1997	0.16	0.12	0.34	0.16	0.22
1998	0.11	0.12	0.36	0.18	0.23
1999	0.11	0.14	0.30	0.18	0.27
2000	0.07	0.15	0.30	0.18	0.29
2001	0.04	0.12	0.35	0.21	0.28
2002	0.05	0.13	0.37	0.20	0.25
2003	0.05	0.13	0.38	0.20	0.24
2004	0.04	0.13	0.42	0.19	0.22
2005	0.03	0.12	0.41	0.21	0.22
2006	0.02	0.11	0.43	0.21	0.23
2007	0.02	0.08	0.40	0.26	0.24
2008	0.02	0.07	0.43	0.22	0.26
2009	0.05	0.08	0.35	0.21	0.30
2010	0.08	0.08	0.32	0.24	0.28
2011	0.07	0.06	0.32	0.26	0.29
2012	0.08	0.06	0.33	0.25	0.29

Note: This figure shows the value-weighted holdings of various marketable securities as a fraction of total bank securities. The sample includes all banks with assets of greater than $1 billion.

Source: Call Report

Figure 2: Composition of Bank Securities Portfolios for High-Capital Banks
Percent

Year	Treasury securities	Agency securities	MBS pass-throughs	CMOs and CMBS	Other
1994	0.31	0.09	0.30	0.09	0.30
1995	0.36	0.16	0.26	0.09	0.20
1996	0.29	0.14	0.23	0.22	0.23
1997	0.25	0.19	0.23	0.16	0.26
1998	0.18	0.14	0.37	0.14	0.30
1999	0.15	0.10	0.38	0.13	0.34
2000	0.09	0.12	0.40	0.17	0.43
2001	0.03	0.08	0.42	0.27	0.35
2002	0.05	0.09	0.44	0.17	0.30
2003	0.06	0.18	0.29	0.22	0.26
2004	0.05	0.09	0.51	0.11	0.27
2005	0.04	0.10	0.47	0.15	0.25
2006	0.02	0.09	0.58	0.14	0.29
2007	0.01	0.08	0.54	0.18	0.29
2008	0.01	0.07	0.56	0.17	0.27
2009	0.06	0.06	0.35	0.22	0.32
2010	0.11	0.07	0.33	0.23	0.28
2011	0.08	0.06	0.37	0.24	0.32
2012	0.10	0.05	0.38	0.24	0.32

Note: This figure shows the value-weighted holdings of various marketable securities as a fraction of total bank securities. The sample includes all banks with assets of greater than $1 billion and above-median values of equity to assets.

Source: Call Reports.

Figure 3: Timing of the Model

Description: Figure depicts a timeline that spans three dates (t=0, t=1, and t=2) 

The figure depicts a timeline with three dates: t=0, t=1, and t=2. A curve is plotted starting at time t=0. The curve is labeled "p," showing the probability that the news is good, during which the slope of the curve rises during time t=1. The slope of the curve levels off in time t=1, holding steady through time t=2, labeled by "R." 

A second curve is plotted from the same starting point as the first, at time t=0. The curve is labeled "1-p," showing the probability that bad state news arrives, and the slope of the curve falls during time t=1. During time t=1, the curve splits in two, with one segment sloping upward, labeled "q," and terminating during time t=2 at a point labeled "R." The other segment of the curve slopes downward, labeled "1-q," and terminates during time t=3 at a point labeled "z_i." 

Details about what activities occur during the three time periods are included. During time t=0, intermediaries purchase the risky asset and issue safe risky claims to households. During time t=1, bad state news arrives with probability 1-p, shadow banks must sell at a discount k_i, and traditional banks are able to hold to maturity. During time t=2, payoff on risky asset is revealed and payoff on claims issued to households are revealed. 

The fundamental value after bad news at t=1 is F_i=qR + (1-q)z_i. However, the market price is only k_iF_i≤F_i.

Source: Authors' model.

 

Figure 4: Asset Illiquidity versus Liability Stickiness across Different Intermediary Types
Index

Sector	Asset Illiquidity Index	Liability Stickiness Index
GSEs	0.45	0.64
P&C INS	0.46	0.76
LIFE INS	0.53	0.93
FINCO	0.76	0.68
MMF	0.11	0.00
REIT	0.36	0.31
DEALERS	0.24	0.42
BANKS	0.65	0.80

Source: Federal Reserve Board flow of funds data and authors' calculations.

 

Figure 5: Asset Illiquidity versus Contractual Liability Maturity across Different Intermediary Types
Index

Sector	Asset Illiquidity Index	Liability Contractual Maturity Index
GSEs	0.45	0.63
P&C INS	0.46	0.76
LIFE INS	0.53	0.93
FINCO	0.76	0.68
MMF	0.11	0.00
REIT	0.36	0.31
DEALERS	0.24	0.36
BANKS	0.65	0.19

Source: Federal Reserve Board flow of funds data and authors' calculations.