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.
The failure and near-collapse of some of the largest dealer banks on Wall Street in 2008 highlighted the profound complexity of the industry. Dealer banks are financial intermediaries that make markets for many securities and derivatives. Like standard banks, funding for a loan made by a dealer bank may come from the bank’s own equity or from external sources, such as depositors or creditors. Unlike standard banks, however, dealer banks rely heavily upon collateralized borrowing and lending, which give rise to “internal” sources of financing. This article provides a descriptive and analytical perspective of dealer banks and their sources of financing, both internal and external. The authors conclude that “internal” sources of financing, relative to external sources of financing, yield high levels of efficiency in normal times, but can experience significant and abrupt reductions in stressful times. Their results suggest that accounting netting for collateralized transactions may not reflect a true netting of economic exposures, and that a prudent risk management framework should acknowledge the risks inherent in collateralized finance.