1. Safe Assets, Saving Gluts, and Financial Stability Presentation for “International Conference on Capital Flows and Safe Assets” Steve Kamin Federal Reserve Board May 2013

2. Global Financial Crisis 2007-2009 Many factors contributed to the crisis: Deteriorating underwriting standards for housing Deteriorating underwriting standards for housing Surge in ABS based on housing loans Surge in ABS based on housing loans Inadequate risk management Inadequate risk management Excessive leverage Excessive leverage Dependence on unstable wholesale funding Dependence on unstable wholesale funding Gaps in regulatory/supervisory oversight Gaps in regulatory/supervisory oversight

3. Global Financial Crisis 2007-2009 Another factor often cited: Global Saving Glut -- Current account surpluses of East Asian economies and oil producers

4. Chart 1 Global Saving Glut (GSG) Countries: Cumulated CA Balance and Acquisitions of US Assets (2003-2007)

5. Variant of Global Saving Glut Story: Capital Flows from Europe

6. Chart 2 Inflows into US Debt Securities over 2003-2007 by the GSG Countries and Europe

7. Chart 3 Inflows into US Debt Securities over 2003-2007 by the GSG Countries and Europe, by Type of Security

8. Unlike Global Saving Glut (GSG) countries, Europe not running current account surpluses during this period.

9. Chart 4 Build-up of Europe’s Cross-Border Positions

10. Chart 5 Estimated Effects on U.S. Yields from GSG and European Acquisitions of U.S. Assets Source: Bertaut et. al. (2012) Effect on yields Treasury yieldABS yield From GSG inflows -2.23-2.75 From Europe's inflows -1.45-1.97

11. The Corporate Saving Glut

18. The Corporate Saving Glut and Safe Assets The corporate saving glut may reflect desire to accumulate safe assets in the face of financial uncertainty. The corporate saving glut may reflect desire to accumulate safe assets in the face of financial uncertainty. High corporate saving may contribute to the demand for safe assets. High corporate saving may contribute to the demand for safe assets.

19. Possible Effects of The Corporate Saving Glut and Related Demand for Safe Assets Hypotheses: May be associated with diminished investment or consumption. May be associated with diminished investment or consumption. May be contributing to the growth of the shadow banking system. May be contributing to the growth of the shadow banking system.

20. Possible Effects of The Corporate Saving Glut and Related Demand for Safe Assets More research is needed to assess these effects. More research is needed to assess these effects.