Abstract: As of year-end 2019, nonfinancial business debt (BD) and household debt (HD) were at similar levels, yet Federal Reserve Financial Stability Report suggested that BD posed greater risks to financial stability than HD. We look through the lens of fire-sale risks to show why nonfinancial BD is more concerning for financial stability. We examine BD and HD according to their holder types, credit quality, and market liquidity features, and we highlight the areas of greatest concern for fire sales.

Abstract: In this note, we look into investment funds' access to and usage of bank credit, based on a new dataset on credit line (and other types of loan) extension by top bank holding companies to open-end mutual funds and ETFs in the United States. We find that the aggregate amount of bank lending to open-end funds and ETFs was small and greatly fluctuated across time. Bank credit, particularly in the form of credit lines, has offered funds a flexible liquidity source from which they can draw down cash in times of excessive fund outflows, such as during the onset of the COVID-19 pandemic outbreak. In particular, funds that hold relatively more illiquid assets, such as bank loan funds, are more reliant on bank credit lines.