We review the literature on sustainable investing, focusing on financial effects. First, we examine the effects of investor tastes on portfolio tilts and asset prices in a simple equilibrium setting. We establish novel connections, including a direct relation between the green portfolio tilt and the greenium. We also relate our framework to prior modeling of divestment. Finally, we review evidence related to the main concepts from our theoretical analysis, including the greenium, green tilts, climate risk, and investor tastes.

Governments have often used two policy instruments to lower financing costs: the money supply to generate seigniorage and regulation of the financial system to increase demand for their interest-bearing bonds. Both involve trade-offs. This article marshals historical evidence and economic theories about how the US federal government has arranged monetary, financial, and fiscal systems since 1800 to lower its financing costs. In doing so, we infer evolving priorities of different US administrations.

Since ChatGPT's release in 2022, demand for artificial intelligence (AI)–related skills in finance has grown rapidly, as generative AI drives significant technological changes in both the financial research field and the broader economy. We show that financial occupations are highly exposed to the productivity effects of generative AI, review the literature on the impact of ChatGPT on firm value, and provide directions for future research investigating the impact of this major technology shock. Generative AI also holds great potential as a tool for finance researchers and practitioners: We review and describe innovations in research methods linked to improvements in AI tools, along with their applications. We offer a practical introduction to available tools and advice for researchers in academia and industry interested in using these tools.

This review article highlights what we know from neuroeconomics regarding the effects of context, past experiences, and age on brain processes involved in decision-making and illustrates how finance research has built on these insights, and how it could continue to do so going forward.

In this review, we explore the economic channels through which net zero banking might be consistent with lender business incentives. We begin with a framework wherein net zero lending may create value differentially from carbon-intensive lending through the channels of ( a ) credit risk and ( b ) lending returns conditional on risk (i.e., profit margins and lending book growth). When applying the framework as a lens to survey the literature, we uncover multiple roles for risk characteristics of lending opportunities being influenced by decarbonization. Moreover, decarbonization and green investment are tied to enhanced profitability through bank lending growth. We also highlight gaps in research knowledge and point out opportunities to connect the broader banking literature with climate finance. For instance, bank specialization in sector-specific risk and return advantages in bank lending may already be playing a role in the net zero transition. We conclude that net zero banking is an economic concept.

This article examines US Treasury securities market functioning from the global financial crisis through the COVID-19 pandemic given the ensuing market developments and associated policy responses. We describe the factors that have affected intermediaries, including regulatory changes, shifts in ownership patterns, and increased electronic trading. We also discuss their implications for market functioning in both normal times and times of stress. We find that alternative liquidity providers have stepped in as constraints on dealer liquidity provision have tightened, supporting liquidity during normal times, but with less clear effects at times of stress. We conclude with a brief discussion of more recent policy initiatives that are intended to promote market resilience.

In financial crises, a period of overheated credit markets turns into a credit crunch accompanied by a systemic breakdown in the financial intermediary sector. Without a deep understanding of their roots, designing policies to decrease the probability of suffering from them or to avoid the worst consequences is like flying blind. In this review, I survey the recent development of the theory of financial crises. I focus on the answers these theories provide to four fundamental questions. What makes the booming phase fragile, and what are the incentives and frictions leading to that fragility? What triggers the crisis? Why is the downturn persistent? Should policy intervene, and if so, how?

Making payments in an efficient manner is critical to a well-functioning economic system. While the direct effect of reducing the cost of payments is an increase in user welfare, changes in the payment system can have broader economic effects. This is because payment systems are characterized by a multisided network externality, as the willingness of consumers to participate in a payment method depends on the number of merchants on the system and operators of a payment system can glean information from the payment flows. We highlight the role that banks have played in the payment system and show how payment innovation can lead to bank disintermediation both in payment services and in the credit market. We highlight some recent innovations in payments—some of these rely on the banking system and others try to bypass it. There are many interesting open questions for researchers to explore in this field.

We assess the efficacy of market-based systemic risk measures that rely on US financial firms’ stock return comovements with market- or sector-wide returns under stress from 1895 to 2023. Stress episodes are identified using corporate bond spread widening and narrative dating, spanning from the Panic of 1907 to the Banking Stress of 2023. Measures observed prior to the onset of stress episodes predict market outcomes (realized volatility and returns), balance sheet outcomes (lending, profitability, and run risk), and bank failures. Specifically, the measures are: ( a ) particularly effective in capturing the cross-sectional ranking of institutions conditional on a stress episode, rather than aggregate outcomes; ( b ) more informative when stress episodes are severe; and ( c ) relevant for both banks and nonbank financial institutions, although measures incorporating market leverage are especially informative for banks. A comparative analysis shows that market-based indicators offer information that is distinct from, and complementary to, traditional balance sheet metrics used in supervisory and macroprudential risk assessment.

Safe and liquid assets (convenience assets) are used to make payments, meet unexpected consumption shocks, and facilitate financial transactions. The value of these convenience services is captured by the convenience yield, which is determined by the aggregate demand and supply of convenience assets. US Treasury securities are a prime example of a convenience asset, while bank and nonbank financial institutions also produce claims with varying degrees of safety and liquidity. Repos are safe and liquid securities created from tranching a long-term bond into a risky equity claim and a debt repo claim. Banks and bond mutual funds create liquid assets by pooling across investors’ idiosyncratic liquidity risk. Finally, packaging securities into a composite, as in mortgage-backed securities, also creates liquid and safe assets. Private sector creation of convenience assets involves a number of challenges, including leverage constraints and panic runs. We discuss how to measure convenience yields, convenience asset creation by the private sector, and the equilibrium determination of convenience yields.