Research Exchange: August 2026

Selected Outside Research

Reciprocal Deposit Networks and Funding Stability

Reciprocal deposits - where banks swap matching deposits with each other through specialized networks - enable customers to spread a large deposit across banks and keep them insured while maintaining a single banking relationship. This paper documents growth in the use of reciprocal deposits, examines what kinds of banks are most likely to participate, and tests whether access to these networks improves banks' funding stability during a crisis. The analysis finds that small and mid-sized banks are the primary users of reciprocal deposits, and participation surged both after a 2018 regulatory change and again around the SVB crisis. Banks with more uninsured deposits - those most exposed to a bank run - tended to increase their use of these networks the most, especially during the 2023 crisis. Banks that already had access to reciprocal deposit networks before the SVB collapse saw notably stronger net cash inflows during the crisis than similar banks without such access, suggesting the networks genuinely bolstered overall funding stability. The study also finds that roughly 30 percent of banks use more than one deposit network, with larger regional banks especially likely to maintain multiple network relationships.

Reciprocal Deposit Networks and Funding Stability

Who Banks on Stablecoins? Equity-Market Evidence from the GENIUS Act

This paper investigates the equity market response to stablecoin legislation as it was moving through Congress in 2025, particularly with respect to which banks were expected to benefit most from reduced regulatory uncertainty. The analysis links daily stock returns for 204 publicly traded U.S. bank holding companies to shifting odds on the bill's passage. As the odds of passage rose, banks with "meaningful exposure to digital asset markets" as indicated by stronger observed linkages between their stock prices and ethereum returns saw their stock prices benefit. Additional analysis shows that these same banks were more likely to later roll out stablecoin or other digital-asset activities, supporting the idea that the market had priced strategic positioning. Once the law passed, the crypto-exposure effect faded. Overall, the findings are "consistent with investors expecting stablecoin regulation to create greater value for payment- and technology-oriented banking models than for banks whose franchise remains concentrated in traditional balance-sheet lending."

Who Banks on Stablecoins? Equity-Market Evidence from the GENIUS Act

Contagion through Opacity: Design and Survival in the November 2025 Stablecoin Cascade

In early November 2025, a systemic run hit the market for yield-bearing stablecoins, following disclosure by the issuer Stream Finance of losses incurred by an external off-chain manager. This paper reconstructs the episode using hourly on-chain transaction data, tracing how the shock moved between tokens and comparing stablecoins that collapsed to one that survived. The authors find that survival hinged not on a token's size or on-chain footprint but on the quality of its backing assets and whether redemptions were honored during the panic. Interestingly, connections between crypto lending platforms played almost no role in spreading the crisis. Instead, the damage traveled through hidden channels - dependencies on externally managed synthetic reserves and a price-tracking system that failed to update, which let millions of dollars in losses build up without ever being formally recognized. The authors argue this reveals a blind spot in how regulators supervise stablecoins and other tokenized assets: they track visible interconnections between platforms while missing the "opacity in valuation" that lets real losses stay concealed.

Contagion through Opacity: Design and Survival in the November 2025 Stablecoin Cascade

The Cov-lite Liquidity Advantage, Regulatory Pressures, and the Evolution of the Leveraged Loan Market

This paper explores whether the stricter regulatory environment that arose after the 2008 financial crisis pushed banks to issue loans that lack traditional financial-maintenance covenants ("cov-lite" loans), which in theory are easier to sell. The analysis finds that banks targeted by the 2013 supervisory guidance on leveraged lending, and those that failed or came close to failing a stress test, issued a larger share of cov-lite loans afterward. Moreover, consistent with theory, cov-lite loans proved to be more liquid than their covenant-heavy counterparts: they started trading sooner, traded more actively, and carried tighter bid-ask spreads. The findings suggest that post-crisis regulatory efforts aimed at curbing bank risk-taking had the unintended side effect of weakening the contractual protections available to lenders in the leveraged loan market.

The Cov-lite Liquidity Advantage, Regulatory Pressures, and the Evolution of the Leveraged Loan Market

Opacity Beyond the Financial Statements: Ownership Complexity and Lenders' Private Assessments

The credit risk of companies with layered corporate ownership structures may be more difficult to assess. This paper explores the relationship between risk evaluation and ownership complexity using confidential EU supervisory data. The analysis compares internal bank risk ratings for the very same company at the same time and finds that risk assessments of the same firm diverge more sharply as the more layers of ownership sit between it and its ultimate owner. This disagreement is found to be unrelated to standard measures of poor disclosure and is not reduced by mandatory audits.

Opacity Beyond the Financial Statements: Ownership Complexity and Lenders' Private Assessments

Default, Fraud Classification, and Lender Heterogeneity in Guaranteed Lending: Evidence from One Million Loans

This study examines fraud in the UK's emergency COVID-19 business lending programs. Using loan-level records covering over 1.1 million business loans under two programs (one with full government guarantees and lighter reviews and one with more conventional underwriting), the study quantifies loan default rates as well as the frequency of cases labeled as fraud. The authors find that the program with looser verification produced substantially higher default rates and fraud labeling. Additionally, fintechs and digital banks identified fraud much less often than traditional banks, whereas their loans failed at similar or higher rates.

Default, Fraud Classification, and Lender Heterogeneity in Guaranteed Lending: Evidence from One Million Loans

Crypto Capture of Foreign Aid

This paper examines the role of cryptocurrency as a money laundering channel in recent years, in the context of corruption in foreign aid programs for developing nations. The authors construct a novel measure that tracks crypto activity around World Bank aid disbursement dates in 2018 through 2024, drawing on Bitcoin blockchain data (transactions and new wallets), exchange records and IP-based web traffic. The analysis, encompassing World Bank foreign aid flows totaling $238 billion sent to 93 recipient countries, identifies brief but pronounced spikes in cryptocurrency activity coinciding with disbursement months, concentrated among anonymous, newly-created wallets on both offshore and mainstream crypto exchanges. The blockchain evidence also appears consistent with the classic placement-layering-integration stages of money laundering. The study estimates that 2 to 6 cents of every aid dollar is diverted this way, while noting that the same blockchain transparency that facilitates this diversion could also assist with efforts to trace and recover the misappropriated funds.

Crypto Capture of Foreign Aid

Featured BPI Research

Are Central Bank Financial Stability Reports Useful? An AI-Based Analysis

This BPI blog post uses AI to assess the value, as reflected in forecasting ability, of widely published risk assessments from the Federal Reserve, European Central Bank and Bank of England. The authors had an AI system read decades of these reports, summarize them, and then compare their risk warnings against what financial news outlets and market analysts were already saying at the time. The findings were unfavorable: when the reports correctly flagged a risk, that risk was almost always already widely known to markets and journalists beforehand - meaning the central banks weren't adding new insight, just confirming existing knowledge. Worse, in several major cases (like the 2008 financial crisis and the 2023 U.S. regional bank failures), the reports failed to flag the risks that ended up mattering most, while at other times they raised alarms about risks that never materialized.

Are Central Bank Financial Stability Reports Useful? An AI-Based Analysis

Outside Blog Posts and Research Notes of Interest

The Rise of Tokenization

Distributed Ledger Technology (DLT) and Secondary Market Liquidity Infrastructure: Contribution to a Sovereign European Tokenised Wholesale Financial System

Cryptocurrency Kiosks: Geography, Fraud Risk, and the U.S. Regulatory Response

Stablecoins and Non-Crypto Shocks: A 2026 Update

Stablecoins After GENIUS: Private Money, Public Debt, and the Global Dollar

Early Warning Signals in Private Credit? What BDC Portfolios Reveal about Emerging Risks

Private Credit and Leveraged Loan Markets: Similarities, Differences, and Substitution

Private Credit's Private Conflicts

Government Bond-Backed Repo Markets: Between Resilience and Vulnerability

Which Debt Payments Do Borrowers Prioritize? Evidence from 2025-2026 Consumer Survey Data

EU Capital Requirements on Megabanks: The Low Road or the High Road

Open Banking: A Critical Piece in the Future of Financial Services

Conferences & Symposiums

9/2/2026 - 9/3/2026
Edinburgh Financial Technology Conference: Announcement and Call for Papers
University of Edinburgh Business School, Edinburgh, Scotland
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9/10/2026 - 9/11/2026
Higher Education Finance Research Conference: Announcement and Call for Papers
Federal Reserve Bank of Philadelphia
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9/13/2026
Workshop on Innovations in Credit Scoring
Federal Reserve Bank of Philadelphia (Virtual)
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9/18/2026 - 9/19/2026
2026 Wharton-Chicago-Harvard Insolvency and Restructuring Conference: Announcement and Call for Papers
University of Pennsylvania, Philadelphia, PA
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9/24/2026 - 9/25/2026
Inflation Drivers and Dynamics Conference 2026: Announcement and Call for Papers
Federal Reserve Bank of Cleveland
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9/24/2026 - 9/25/2026
25th Annual Bank Research Conference: Announcement and Call for Papers
FDIC Center for Financial Research, Arlington, VA
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9/24/2026 - 9/25/2026
10th Annual Fintech Conference
Federal Reserve Bank of Philadelphia
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10/6/2026 - 10/7/2026
2026 Annual Community Banking Research Conference
Federal Reserve Bank of St. Louis
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10/9/2026 - 10/10/2026
2026 Wharton Conference on Liquidity and Financial Fragility
University of Pennsylvania, Philadelphia, PA
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10/29/2026 - 10/30/2026
MIT GCFP 13th Annual Conference | "Financial Regulation in an Era of Innovation and Disruption": Announcement and Call for Papers
Cambridge, MA
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10/29/2026 - 10/30/2026
Sixth Biennial Conference on Auto Lending: Announcement and Call for Papers
Federal Reserve Bank of Philadelphia
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11/5/2026 - 11/6/2026
2026 Federal Reserve Stress Testing Research Conference
Federal Reserve Bank of Boston
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11/13/2026
NY Fed-ECB Conference on Nonbank Financial Institutions: Announcement and Call for Papers
Federal Reserve Bank of New York
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11/18/2026 - 11/19/2026
15th Annual Research Workshop: Efficient and Proportionate Regulation for a Competitive Financial Sector
European Banking Authority (Paris, France)
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11/19/2026 - 11/20/2026
International Conference on Payments and Securities Settlement: Announcement and Call for Papers
Deutsche Bundesbank (Conference Center in Eltville, Germany)
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11/19/2026 - 11/20/2026
2026 Financial Stability Conference
Federal Reserve Bank of Cleveland
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11/20/2026
Pacific Basin Research Conference: Announcement and Call for Papers
Federal Reserve Bank of San Francisco
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