4. Funding Risks
Funding risks at domestic banks are low, but structural vulnerabilities persist at some money market funds, bond funds, and stablecoins
In 2021, the total amount of aggregate financial system liabilities that are vulnerable to runs increased 6.3 percent to $19.1 trillion; that amount was equivalent to about 80 percent of nominal GDP (table 4.1 and figure 4.1).14 Banks relied only modestly on short-term wholesale funding and continued to hold large amounts of HQLA. Prime and tax-exempt MMFs as well as other cash-investment vehicles remained vulnerable to runs, and some open-end mutual funds continued to be exposed to redemption risks because of their holdings of illiquid assets. The stablecoin sector continued to grow rapidly and remains exposed to liquidity risks. While a few signs of funding pressures emerged after the Russian invasion of Ukraine, the effects in broad short-term funding markets have been limited to date.
Table 4.1. Size of selected instruments and institutions
(billions of dollars)
|Average annual growth,
|Total runnable money-like liabilities *||19,149||6.3||4.9|
|Domestic money market funds **||4,756||9.7||5.6|
|Securities lending ***||764||20.0||7.0|
|Bond mutual funds||5,368||8.5||9.3|
Note: The data extend through 2021:Q4. Outstanding amounts are in nominal terms. Average annual growth rates are measured from Q4 of the year immediately preceding the period through Q4 of the final year of the period. Total runnable money-like liabilities exceed the sum of listed components. Items not included in the table are variable-rate demand obligations, federal funds, funding-agreement-backed securities, private liquidity funds, offshore money market funds, short-term investment funds, local government investment pools, and stablecoins.
* Average annual growth is from 2003:Q1 to 2021:Q4.
** Average annual growth is from 2001:Q1 to 2021:Q4.
*** Average annual growth is from 2000:Q1 to 2021:Q4.
Source: Securities and Exchange Commission, Private Funds Statistics; iMoneyNet, Inc., Offshore Money Fund Analyzer; Bloomberg Finance L.P.; Securities Industry and Financial Markets Association: U.S. Municipal Variable-Rate Demand Obligation Update; Risk Management Association, Securities Lending Report; DTCC Solutions LLC, an affiliate of the Depository Trust & Clearing Corporation: commercial paper data; Federal Reserve Board staff calculations based on Investment Company Institute data; Federal Reserve Board, Statistical Release H.6, "Money Stock Measures" (M3 monetary aggregate, 1997–2001); Federal Reserve Board, Statistical Release Z.1, "Financial Accounts of the United States"; Federal Financial Institutions Examination Council, Consolidated Reports of Condition and Income (Call Report); Morningstar, Inc., Morningstar Direct; Moody's Analytics, Inc., CreditView, Asset-Backed Commercial Paper Program Index.
Banks maintained high levels of liquid assets and stable funding...
As a share of total assets, HQLA remained historically high at banks (figure 4.2). Reliance on short-term funding stayed near all-time lows (figure 4.3). Maturity transformation reached historically high levels, as large banks rapidly increased their holdings of low-risk, longer-duration securities funded by inflows of deposits. The increasing mismatch between the maturity profiles of assets and liabilities exposes banks to interest rate risk. However, the losses on securities holdings associated with rising interest rates could be at least partially offset by increasing net interest margins. Together with banks' strong capital positions, the improved profitability could mitigate banks' vulnerability stemming from maturity transformation.
. . . but structural vulnerabilities remained at some money market funds and other cash-management vehicles
Assets under management at prime and tax-exempt MMFs, which began trending down in mid-2020, have continued to decline, on net, in recent months (figure 4.4). These MMFs remain a structural vulnerability due to their susceptibility to runs, and MMF reforms to mitigate this vulnerability continue to be a priority for domestic and international policymakers. In December, the SEC published for public comment a proposed MMF reform package that includes a requirement that those prime and tax-exempt funds that are offered to institutional investors adopt swing pricing, which, if properly calibrated, could reduce investors' incentive to run from funds amid stress.15 The proposal would also remove liquidity fees and redemption gate provisions in the existing rule, increase MMFs' minimum required liquidity buffers, and introduce additional reporting requirements.16
Other cash-management vehicles, including dollar-denominated offshore funds and short-term investment funds, also invest in money market instruments and are vulnerable to runs; moreover, these vehicles are less transparent and regulated than MMFs. Over the past six months, the assets under management at these vehicles remained at just over $1 trillion. Currently, between $330 billion and $1 trillion of these vehicles' assets are in portfolios similar to those of U.S. prime MMFs, and a wave of redemptions from them could destabilize short-term funding markets.
The Russian invasion of Ukraine does not appear to have left a material imprint on broader short-term funding markets. Trading conditions have been stable, and while spreads on some types of commercial paper with maturities of 30 days or more increased notably, issuance continued and spreads remained well below the levels reached in March 2020. Domestic MMFs have no direct exposure to entities domiciled in Russia or Ukraine. Furthermore, Russian and Ukrainian entities had a very limited presence in short-term funding markets before the escalation of the Russia–Ukraine conflict. However, like domestic banks, MMFs and other cash-management vehicles could be affected indirectly through their exposures to European banks if the conflict intensifies in a way that causes significant adverse effects on the European economy or roils financial markets.
Stablecoins are also vulnerable to runs, and the sector continues to grow rapidly
The aggregate value of stablecoins—digital assets that are designed to maintain a stable value relative to a national currency or other reference assets—grew rapidly over the past year to more than $180 billion in March 2022.17 The stablecoin sector remained highly concentrated, with the three largest stablecoin issuers—Tether, USD Coin, and Binance USD—constituting more than 80 percent of the total market value.18
Stablecoins typically aim to be convertible, at par, to dollars, but they are backed by assets that may lose value or become illiquid during stress; hence, they face redemption risks similar to those of prime and tax-exempt MMFs. These vulnerabilities may be exacerbated by a lack of transparency regarding the riskiness and liquidity of assets backing stablecoins. Additionally, the increasing use of stablecoins to meet margin requirements for levered trading in other cryptocurrencies may amplify volatility in demand for stablecoins and heighten redemption risks.19 The President's Working Group on Financial Markets, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have made recommendations to address prudential risks posed by stablecoins.
On March 9, 2022, President Biden issued an executive order (EO) outlining a coordinated interagency approach for the responsible development of digital assets, which, together with related activities, have expanded considerably.20 Additionally, some crypto-assets—such as Bitcoin—have experienced extreme price volatility. Among other things, the EO directs the FSOC to issue a report on the financial stability risks and regulatory gaps posed by digital assets and include recommendations for addressing these risks. The EO also encourages the Board to continue research on central bank digital currencies (CBDCs), including how they could improve the efficiency and reduce the costs of payment systems. For a broader discussion of CBDCs, see the box "Central Bank Digital Currency and Financial Stability."
Box 4.1. Central Bank Digital Currency and Financial Stability
Recent technological advances have ushered in a wave of new private-sector financial products and services, including digital wallets, mobile payment apps, and new digital assets such as cryptocurrencies and stablecoins. These technological advances have also led central banks around the globe to explore the potential benefits and risks of issuing a CBDC.
A CBDC is a digital liability of a central bank that is widely available to the general public. In this respect, it is analogous to a digital form of paper money.1 Today, Federal Reserve notes (that is, physical currency) are the only type of central bank money available to the general public. As a liability of the Federal Reserve, a CBDC would be the safest digital asset available to the general public, with no associated credit or liquidity risk. It could provide households and businesses with a variety of new financial products and services, support faster and cheaper payments (including cross-border payments), and expand consumer access to the financial system.
However, a CBDC could pose a variety of risks and would raise important policy questions, including how it might affect financial-sector market structure, the cost and availability of credit, the safety and stability of the financial system, and the efficacy of monetary policy.
Like other central banks, the Federal Reserve is engaged in research into this topic. The Federal Reserve's work focuses on how a CBDC could improve on an already safe, effective, dynamic, and efficient domestic payments system, with full recognition that the implications and risks must be thought through very carefully, including implications for financial stability.
In January, the Federal Reserve published a discussion paper as a first step in fostering a broad and transparent public dialogue about the potential benefits and risks of a U.S. CBDC.2 The Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from the Congress, ideally in the form of a specific authorizing law.
Design of central bank digital currency
While no decisions have been made, the Federal Reserve's January discussion paper indicates that a potential CBDC would best serve the needs of the United States by being privacy protected, identity verified, intermediated, and transferable:
- Privacy protected: Protecting user privacy is critical. The Federal Reserve is researching technological and policy options for a robust privacy framework.
- Identity verified: A CBDC would need to comply with rules designed to combat money laundering and the financing of terrorism.
- Intermediated: Under an intermediated model, private-sector intermediaries would offer accounts or digital wallets to facilitate the management of CBDC holdings and payments.
- Transferable: A CBDC must be seamlessly transferable between customers of different intermediaries.
Potential benefits and use cases
The Federal Reserve is considering how a CBDC might fit into the U.S. money and payments landscape. A crucial test for a potential CBDC is whether it would provide benefits to households, businesses, and the overall economy that exceed any costs and risks and whether it would yield such benefits more effectively than other methods.
A CBDC has the potential to support financial stability. In a rapidly digitizing economy, the proliferation of new types of digital money, including stablecoins, could present risks to both individual users and the financial system as a whole. A CBDC could provide the public with broad access to digital money that is free from credit and liquidity risk.
A CBDC might also help level the playing field in payment innovation for private-sector firms of all sizes. A CBDC could serve as a safe and robust form of digital money that could allow private-sector innovators to focus on new access services, distribution methods, and related service offerings.
A CBDC might generate new capabilities to meet the evolving speed and efficiency requirements of the digital economy. Depending on the design, a CBDC may improve cross-border payments, support the dollar's international role, and promote financial inclusion.
Key risks and policy considerations
Although the introduction of a CBDC could benefit consumers and the broader financial system, such a potential step also raises complex policy issues and risks.
A CBDC could fundamentally change the structure of the U.S. financial system, altering the roles and responsibilities of the private sector and the central bank. A widely available CBDC could serve as a close substitute for commercial bank deposits or other low-risk assets such as government MMFs and Treasury bills. A shift away from these assets could reduce credit availability or raise credit costs for households, businesses, and governments. In times of stress, the ability to convert other forms of money into CBDC could make runs on financial firms more likely or more severe.
Additionally, depending on the design, a CBDC could affect the efficacy of monetary policy implementation. Any CBDC would also need to be extremely resilient to operational disruptions and cybersecurity risks, and it would need to strike an appropriate balance between safeguarding consumer privacy and affording the transparency necessary to deter criminal activity.
The Federal Reserve has not advanced any specific policy outcome and will not be making any imminent decisions about the appropriateness of issuing a U.S. CBDC. Rather, it is seeking input from a wide range of stakeholders that might use a CBDC or be affected by its introduction.3
1. In the United States, money takes multiple forms. Central bank money, a liability of the central bank, comes in the form of physical currency issued by the Federal Reserve and digital balances held by commercial banks at the Federal Reserve. Central bank money has no associated credit or liquidity risk. Commercial bank money is the digital form of money that is most commonly used by the public. Commercial bank money is held in accounts at commercial banks, and it has little credit or liquidity risk. Nonbank money is digital money held as balances at nonbank financial service providers. These firms typically conduct balance transfers on their own books using a range of technologies, including mobile apps. Nonbank money may carry more credit and liquidity risk, depending on the design. Return to text
2. See Board of Governors of the Federal Reserve System (2022), "Money and Payments: The U.S. Dollar in the Age of Digital Transformation" (Washington: Board of Governors, January), https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf. Return to text
3. The Federal Reserve welcomes feedback on the potential benefits and risks of a U.S. CBDC. See the Central Bank Digital Currency (CBDC) Feedback Form, available on the Board's website at https://www.federalreserve.gov/apps/forms/cbdc. Return to text
Bond mutual funds experienced modest outflows and remained exposed to liquidity and interest rate risks
Mutual funds that invest substantially in corporate bonds, municipal bonds, and bank loans may be particularly exposed to liquidity transformation risks, given the relative illiquidity of their assets and the requirement that these funds offer redemptions daily. The aggregate value of U.S. corporate bonds held by mutual funds declined somewhat in the second half of 2021 but remained high compared with historical levels (figure 4.5). Total assets under management at high-yield and bank loan mutual funds, which primarily hold riskier and less liquid assets, remained high as of January 2022 (figure 4.6). Beginning in December 2021, U.S. investment-grade bond mutual funds experienced modest outflows, as increases in interest rates weighed on these funds' performance. Meanwhile, bank loan funds, which generally hold floating-rate instruments and are less prone to suffer losses when interest rates rise, attracted inflows (figure 4.7).
The Russian invasion of Ukraine may have increased the liquidity risks at mutual funds with exposures to Russia or European countries affected by the war. However, the number of U.S. mutual funds with direct exposures to Russian securities was small before the Russian invasion of Ukraine, and while these funds suffered losses on these securities following the invasion, they have continued to meet redemption requests to date.21
Central counterparties made larger margin calls amid elevated market volatility
Elevated market volatility driven by the Russian invasion of Ukraine—particularly in commodity markets—caused CCPs to make large margin calls, which put pressure on some clearing participants (see the box "Commodity Market Stresses following Russia's Invasion of Ukraine"). To date, clearing members have been able to meet these margin calls, and, in general, CCPs effectively managed the increased risks and higher trading volumes. Based on the increase in initial margin observed at certain derivatives CCPs so far this year, prefunded resources at CCPs are expected to have increased since the latest observation in the fourth quarter of 2021, climbing further above pre-pandemic levels.22 Additionally, cash increased as a share of CCPs' prefunded resources in the second half of 2021, and banks, which provide credit lines to CCPs, are well positioned to meet potential draws from CCPs due to high levels of HQLA. However, ongoing concerns remain around increased retail trading of equities and related derivatives, as well as concentration of clients at the largest clearing members.
Box 4.2. Commodity Market Stresses following Russia's Invasion of Ukraine
Russia's invasion of Ukraine and subsequent international sanctions disrupted global trade in commodities, leading to surging prices and heightened volatility in agriculture, energy, and metals markets. These markets include spot and forward markets for physical commodities as well as futures, options, and swaps markets that involve an array of financial intermediaries and infrastructures. Stresses in financial markets linked to commodities could disrupt the efficient production, processing, and transportation of commodities by interfering with the ability of commodity producers, consumers, and traders to lock in prices and hedge risks. Such stresses can also increase liquidity and credit risks for financial institutions that are active in commodity markets. To date, however, the financial market stresses do not appear to have significantly disrupted broader economic activity or created substantial pressure on key financial intermediaries, including banks.
Commodity price dynamics since the invasion
Russia is a major global exporter of oil, natural gas, and certain metals. The invasion and sanctions disrupted supplies of some commodities. Although Russian energy exports have generally kept flowing, market participants are highly concerned with future prospects. In addition, both Russia and Ukraine are major exporters of grain, and the ongoing war as well as sanctions on Belarus's fertilizer exports are seen as likely to disrupt future production of grain and other agricultural commodities.
In this environment, prices for many commodities have risen sharply, on net, and fluctuated dramatically in response to geopolitical developments (figure A). A notable exception has been natural gas for delivery in North America, where the price has been relatively stable due to limited capacity for shipping North American natural gas to Europe to replace Russian exports.
Commodity trading, clearing, and settlement
The simplest commodity transactions occur in spot markets, where a seller immediately delivers the commodity to a buyer for cash. A buyer and a seller who wish to plan ahead can also engage in a bilateral forward contract, establishing a price and future date at which delivery will occur.
Commodities are also traded on futures exchanges, which standardize contract terms (such as expiration dates and the precise definition of the reference commodity) and establish trading rules (such as limits on the size or speed of price changes). Since the invasion, for most commodities, futures trading volumes and open interest—the number of contracts outstanding at the end of the day—have remained in normal ranges. However, in the key contract for natural gas in Europe, trading volume spiked to unprecedented levels in late February and early March, indicating rapid changes in market participants' positions. This spike occurred even as open interest continued to trend downward for the year to date as participants somewhat reduced their exposure to the market on net (figure B).
Futures are cleared at CCPs, which stand between buyers and sellers to guarantee that contracts will be fulfilled. To manage their risks, CCPs require initial margin (that is, collateral posted to the CCP), collect variation margin (that is, daily or more frequent cash payments to cover mark-to-market changes in value), and maintain additional resources to cover losses in the event of a participant's default. CCPs require participants to post sufficient initial margin to cover at least the 99th percentile of potential price changes over a defined period of risk, typically one or two days for commodity futures. Because the size of potential price changes can rise rapidly during volatile periods, CCPs typically set initial margin requirements above this minimum level when markets are calm, reducing the need to raise requirements during stress. Still, as volatility rose in response to geopolitical developments in February and March, CCPs substantially increased initial margin requirements. The initial margin requirement tripled for the main wheat futures contract, and for oil it rose to match the May 2020 peak (figure C).
The initial margin increases were partly due to increases in contract values, but requirements also rose as a percentage of contract values—a more precise indicator of the risk that collateral can absorb (figure D). For European natural gas, initial margin as a percentage of contract value had been rising since late 2021 and soared to 80 percent of the contract value as the Russian invasion continued. Initial margin as a percentage of contract value also reached the top of the historical range for wheat and U.S. natural gas but remained well below the 2020 peak for oil. Despite the margin increases, daily price moves in wheat futures exceeded the CCP's initial margin requirement at the contract level on seven trading days from February 22 through the end of the first quarter, far above the expected frequency for a 99 percent coverage level.
Commodity futures can be cash settled or physically settled. For a contract settled in cash, participants exchange payments at the expiration date based on a price for the underlying commodity. In a physically settled contract, participants who hold short positions at expiration deliver the commodity at a specified time and place in return for payment of the determined settlement price. Short sellers include commodity producers, such as farmers or miners, who are hedging the risk of a price decrease on their output, as well as traders speculating on the direction of prices. Short sellers who do not own a sufficient, immediately deliverable amount of the commodity generally seek to close their positions by buying an offsetting long contract before expiration. However, if the commodity is in limited supply, buying a long contract to offset a short may be expensive. Additionally, when market liquidity is constrained, covering by short sellers may cause prices to rise more sharply than normal.
In early March, at the London Metal Exchange, the prospect of interruptions in Russia's nickel exports generated heavy pressure on short sellers of nickel, whose concentrated positions appeared to amplify the shock. The exchange experienced unprecedented price spikes that caused severe financial stress for some participants. In order to recover, the exchange cancelled trades at the peak prices and called a multiday trading halt. In markets for other commodities, traders, exchanges, and CCPs managed through the stress without severe incidents.
Commodity derivatives, particularly swaps, are also traded in OTC markets. The terms of OTC commodity derivatives can be customized to help participants precisely hedge particular risks. OTC commodity derivatives are not always guaranteed by CCPs or subject to the same uniform risk-management rules as exchange-traded derivatives.
Implications for commodity producers and consumers
Businesses that produce commodities or that use commodities to produce other products and services often rely on futures to hedge price risk. For example, a wheat farmer or grain elevator may take a short position in wheat futures to hedge the risk of receiving a low price on the crop, while a flour mill may take a long position in wheat futures to hedge the risk of having to pay a high price for inputs. Commodity trading firms are also important users of commodity futures. These firms move commodities from producers to consumers, sometimes storing or processing them along the way. A trading firm's physical exposures can be both long (for example, ownership of a tanker full of oil) and short (for example, a commitment to deliver oil to a refinery) and, correspondingly, may be hedged with both short and long futures positions. A market participant that primarily uses futures to hedge its physical risks is known as a hedger.
Recent developments increased the cost of hedging in commodity futures markets in three ways:
- Producers and trading firms needed funding liquidity to make variation margin payments to CCPs on short futures positions after price increases, even as these hedgers' physical holdings gained in value. Obtaining such funding can be difficult or costly, especially for smaller firms or on short notice. For example, Peabody Energy, the United States' largest coal producer, announced in March that it obtained a $150 million unsecured credit facility at a 10 percent interest rate to cover derivatives funding needs.
- The risk of futures positions increased with higher volatility, even for participants whose combined physical and futures positions were perfectly hedged. The resulting higher initial margin requirements on exchange-traded futures meant that both short and long hedgers needed cash to post additional collateral to CCPs. In addition, some financial institutions reportedly asked customers to limit futures positions in light of the risks and associated capital requirements, which raise the institutions' costs of intermediating between customers and CCPs.
- Market liquidity, the ease of entering or exiting a position, diminished as trading became more costly for end users and as market makers pulled back to manage their own risks. Bid-ask spreads widened, and the price effect of large trades increased (figure E; for more information, see the box "Recent Liquidity Strains across U.S. Treasury, Equity Index Futures, and Oil Futures Markets"). In wheat futures, for several consecutive days, the price rose by a daily limit set by the exchange. While these price limits were binding, trading volume appeared to be reduced, and for a time the May wheat futures price was significantly below implied prices in related markets, such as options, that were not subject to the same limits. Price changes also reached daily limits in corn futures at times.
Businesses that produce or use commodities are potentially vulnerable to these financial stresses, but, so far, the stresses do not appear to have significantly altered their production or usage. Higher hedging costs could, in principle, deter commodity producers from making investments that would increase output, users from expanding factories that employ commodity inputs, or trading companies from shipping commodities around the world. Such reactions to higher hedging costs could conceivably reduce the supply of commodities or prevent them from being put to the most productive use. The first sign that higher hedging costs were weighing on end users would likely be decreases in commodity futures positions of producers, consumers, and other hedgers. To date, hedgers' positions in major U.S. commodity futures contracts remain within historical ranges, even as Russia's invasion of Ukraine has roiled commodity markets (figure F). As previously mentioned, open interest in the key Dutch natural gas futures contract has trended downward, but the data are not broken out to show how much of the decrease is in the positions of hedgers.
Implications for financial intermediaries
Financial institutions such as banks and broker-dealers can be exposed to risks in commodity markets as a result of the institutions' own trades or as a result of guaranteeing their customers' futures trades. Most participants access commodity futures markets through financial institutions that are members of the relevant CCP. Members must cover any margin calls that their customers fail to meet. In addition, if a customer fails to deliver a physical commodity, the clearing member is liable for the replacement cost of the missing goods.
Banks and dealers frequently use futures to offset the risks from customized OTC transactions with their clients. For example, a bank might enter an OTC swap with a mining company to allow the mining company to hedge the price risk on its metal output over multiple years. The bank could then use exchange-traded futures to hedge the price risk of the swap. As long as the customer paid the amounts due under the swap, the bank would be hedged against movements in the price of the metal. However, if the customer defaulted, the bank could be left with an unhedged or partially hedged futures position.
Pressures on most large banks from exposures to commodity markets so far have been modest relative to the banks' sizable capital and liquidity resources, in part because the most extreme volatility has been confined to specific commodity markets such as nickel, wheat, and European natural gas, and because clients have largely been able to cover their obligations. Nevertheless, commodity markets are stressed. Ongoing and more widespread extreme volatility associated with the Russian invasion of Ukraine or other adverse shocks could pose greater challenges, especially if major clients were to require significantly more liquidity or if defaults were to become widespread.Return to text
Liquidity risks at life insurers continued to increase
Over the past decade, the liquidity of life insurers' assets declined and the liquidity of their liabilities increased, potentially making it more difficult for life insurers to meet a sudden rise in withdrawals and other claims. On the asset side, life insurers increased the share of risky, illiquid assets—including CRE loans, less liquid corporate debt, and alternative investments—on their balance sheets (figure 4.8). At the same time, life insurers increasingly relied on nontraditional liabilities, such as funding-agreement-backed securities, Federal Home Loan Bank advances, and cash received through repurchase agreements and securities lending transactions. These liabilities, which are generally more vulnerable to rapid withdrawals than most policyholder liabilities, have grown steadily in recent years (figure 4.9).
14. Table 4.1 and figure 4.1 do not include stablecoins. Return to text
15. Under the SEC's proposal for MMFs, swing pricing would reduce an MMF's price per share on days when it has costly net redemptions. The reduction in share price would be calibrated to pass on the costs associated with redemptions to redeeming investors. Return to text
16. For more information, see Securities and Exchange Commission (2021), "SEC Proposes Amendments to Money Market Fund Rules," press release, December 15, https://www.sec.gov/news/press-release/2021-258. Return to text
17. See International Organization of Securities Commissions (2022), IOSCO Decentralized Finance Report (Madrid: IOSCO, March) https://www.iosco.org/library/pubdocs/pdf/IOSCOPD699.pdf. Return to text
18. See IOSCO, Decentralized Finance Report, in note 17. Return to text
19. See Gary B. Gorton, Chase P. Ross, and Sharon Y. Ross (2022), "Making Money," NBER Working Paper Series 29710 (Cambridge, Mass.: National Bureau of Economic Research, January), https://www.nber.org/papers/w29710. Return to text
20. See Executive Office of the President (2022), "Ensuring Responsible Development of Digital Assets," Executive Order 14067 of March 9 (Document No. 2022-05471), Federal Register, vol. 87 (March 14), pp. 14143–52. Return to text
21. Following the invasion, several Russia-focused equity exchange-traded funds (ETFs) listed in the United States began trading at significant premiums to their net asset values, reflecting market participants' expectations that the ETFs' sponsors would be forced to halt share creation due to the suspension of trading in their underlying securities and the effects of U.S. sanctions on the movement and ownership of Russian securities. On March 4, U.S. stock exchanges halted trading in five of these ETFs, although redemptions from these funds were still available, and spillovers to large, diversified emerging market equity ETFs that also hold Russian securities were limited. Return to text
22. Prefunded resources represent financial assets, including cash and securities, transferred by the clearing members to the CCP to cover that CCP's potential credit exposure in case of default by one or more clearing members. These prefunded resources are held as initial margin and prefunded mutualized resources. Return to text