as bond and mortgage insurers, and have large, unpredictable effects. second, if leveraged financial institutions such as banks were the only ones that had credit losses and, as a result, cut back lending, other institutions or securities issuance could replace some of the lost lending. put another way, although banks are special because they have advantages in processing information and making loans, a big contraction in their assets would not necessarily choke off all lending. banks are special, but not that special. as i discussed earlier, a key characteristic of this episode of financial disruption is that it has spread far beyond leveraged financial institutions. it has led to a sharp decline in securities issuance ; this decline has to be an important part of the story of why the current financial market turmoil is affecting economic activity. in other words, mortgage credit losses are a problem because they are hitting bank balance sheets at the same time that the securitization market is experiencing difficulties. effect of decreased leveraged institution lending on aggregate spending the paper then examines the well - known correlation between growth in debt and gross domestic product ( gdp ) to estimate the effect of the $ 910 billion decline in leveraged institution lending on economic growth. the authors first estimate an ordinary - least - squares ( ols ) regression of quarterly gdp growth on four lags of gdp growth and the past fourquarter growth rate of domestic nonfinancial debt growth. they find that if debt growth falls by 1 percentage point and stays below baseline for a year, quarterly gdp growth is predicted to fall by 0. 14 percentage point initially and by 0. 22 percentage point over time. the authors rightfully recognize, however, that the coefficient on debt growth may be biased upward because of reverse causality – that is, causality might run from higher economic growth to higher debt growth, because when desired purchases increase, households and business finance them by borrowing more. another way of stating the problem is that the debt - growth coefficient may not only reflect the affects of changes in credit supply but also changes in the demand for credit. to deal with the possible bias in the ols regression and estimate the effect of credit supply on economic growth, the authors appropriately turn to instrumental variable ( iv ) estimation by instrumenting debt growth in their regression with two instruments, the treasuryeurodollar ( ted ) spread and the senior loan officer opinion survey on the willingness of banks to make installment loans. the iv estimate of the coefficient on debt growth more than doubles,

michael s barr : brief remarks - national community reinvestment coalition just economy conference brief remarks ( via pre - recorded video ) by mr michael s barr, vice chair for supervision of the board of governors of the federal reserve system, at the national community reinvestment coalition just economy conference, washington dc, 29 march 2023. * * * good morning. thank you to the national community reinvestment coalition ( ncrc ) for the invitation to speak with you today. i regret that i cannot be there in person, but i can imagine the energy and excitement in a room full of so many dedicated community development professionals. i appreciate all the work that ncrc members and partner organizations do to advance economic opportunities for people and communities throughout the country, and the role you play in helping to inform public policy. for these brief remarks, i was asked to share my thoughts on the community reinvestment act ( cra ), a topic of great interest to all of you and to me as well. as you are well aware, the federal reserve is working in partnership with the office of the comptroller of the currency ( occ ) and the federal deposit insurance corporation ( fdic ) to release a final rule for the cra. the cra is one of the seminal laws enacted to address systemic inequities in access to credit and one of the best tools that we, as regulators, have to help ensure banks meet their affirmative obligation to serve the credit needs of the communities in which they do business, including low - and moderate - income communities. cra has been an area of focus for me for over 25 years. as many of you know, i have had the opportunity to research and write about the cra and its impact long before joining the federal reserve board. therefore, i was pleased to be asked by chair powell to lead the fed's efforts, taking the baton from vice chair brainard, as the agencies work together to finalize much - needed updates to the cra. the three agencies have been inclusive and analytical in their approach to cra reform. extensive stakeholder engagement and policy deliberations directly informed our proposal last year. what i will lay out as priorities for cra reform align with the priorities you have heard previously from the federal reserve, occ, and fdic. first, a successful reform of cra must advance the core purpose of the statute. the law was intended to address inequities in access to credit and promote