nep-cfn New Economics Papers
on Corporate Finance
Issue of 2014‒03‒22
ten papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Bank Failures and the Source of Strength Doctrine By Vincent Bouvatier; Michael Brei; Xi Yang
  2. The Stock Exchange of Suriname: Returns, Volatility, Correlations and Weak-form Efficiency By Bodeutsch, D.; Franses, Ph.H.B.F.
  3. A Tourism Conditions Index By Chang, C-L.; Hsu, H-K.; McAleer, M.J.
  4. Global financial stability - the road ahead By Dudley, William
  5. Liquidity policies and systemic risk By Adrian, Tobias; Boyarchenko, Nina
  6. The capital and loss assessment under stress scenarios (CLASS) model By Hirtle, Beverly; Kovner, Anna; Vickery, James; Bhanot, Meru
  7. Financial stability policies for shadow banking By Adrian, Tobias
  8. Soft Information and Default Prediction in Cooperative and Social Banks By Simon Cornée
  9. Recreating the South Sea Bubble: Lessons from an Experiment in Financial History By Giovanni Giusti; Charles Noussair; Hans-Joachim Voth
  10. Leverage and Beliefs: Personal Experience and Risk Taking in Margin Lending By Peter Koudijs; Hans-Joachim Voth

  1. By: Vincent Bouvatier; Michael Brei; Xi Yang
    Abstract: This paper examines the determinants of bank failures in the US banking system during the recent financial crisis. The analysis employs a dataset on the financial statements of FDIC-insured commercial banks and their bank holding companies, along with information on bank failures, mergers, and acquisitions. The econometric evidence suggests that failed banks have been characterized by significantly higher loan growth rates, well ahead of the financial crisis, coupled with higher exposures to the mortgage market segment and to funding in the form of brokered deposits. We also find evidence that commercial banks have been less likely to fail, when they belonged to well-capitalized and profitable bank holding companies with lower exposures to short-term funding. Our results provide empirical support for the recent modifications in bank regulation and supervision which introduce countercyclical components for capital buffers and a more comprehensive supervision of consolidated banking groups.
    Keywords: financial crises, bank failures, bank regulation
    JEL: G21 E58 G32
    Date: 2014
  2. By: Bodeutsch, D.; Franses, Ph.H.B.F.
    Abstract: __Abstract__ The empirical properties of stock returns are studied for 10 companies listed at the Suriname Stock Exchange (SSE), which is a young and growing stock market. Individual stock returns are found to be predictable from the own past to some extent, but the equal-weighted index returns are not. Dynamic correlations with large Latin-American stock markets appear to be zero. It is concluded that there is much more efficiency to be gained for the SSE.
    Keywords: emerging markets, developing countries, returns, volatility, market weak-form efficiency
    JEL: G15 G14
    Date: 2014–02–01
  3. By: Chang, C-L.; Hsu, H-K.; McAleer, M.J.
    Abstract: __Abstract__ This paper uses monthly data from April 2005 to August 2013 for Taiwan to propose a novel tourism indicator, namely the Tourism Conditions Index (TCI). TCI accounts for the spillover weights based on the Granger causality test and estimates of the multivariate BEKK model for four TCI indicators to predict specific tourism and economic environmental indicators for Taiwan. The foundation of the TCI is the Financial Conditions Index (FCI), which is derived from the Monetary Conditions Index (MCI). The empirical findings show that TCI weighted by spillovers reveal greater significance in forecasting the Composite Index (CI), an economic environmental indicator, than the Tourism Industry Index (TII), which is an existing indicator for the tourism industry that is listed on the Taiwan Stock Exchange (TWSE). Moreover, previous values of the alternative TCI and TII are shown to contain useful information in predicting both tourism and economic environmental factors. Overall, the new Tourism Conditions Index is straightforward to use and also provides useful insights in predicting tourism arrivals and the current economic environment.
    JEL: B41 E44 E47 G32
    Date: 2014–01–01
  4. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Remarks at the Tenth Asia-Pacific High Level Meeting on Banking Supervision, Auckland, New Zealand
    Keywords: global financial system; shadow banking; global systemically important financial institutions(G-SIFIs); too big to fail; Comprehensive Capital Analysis and Review (CCAR); single point of entry (SPE); gone concern loss absorption capacity (GLAC); lender-of-last-resort (LOLR); Liquidity Coverage Ratio (LCR); Net Stable Funding Ratio (NSFR); central counterparties (CCPs); Financial Stability Board (FSB); Data Gaps Initiative (DGI)
    JEL: F30 G28
    Date: 2014–02–26
  5. By: Adrian, Tobias (Federal Reserve Bank of New York); Boyarchenko, Nina (Federal Reserve Bank of New York)
    Abstract: The growth of wholesale-funded credit intermediation has motivated liquidity regulations. We analyze a dynamic stochastic general equilibrium model in which liquidity and capital regulations interact with the supply of risk-free assets. In the model, the endogenously time-varying tightness of liquidity and capital constraints generates intermediaries’ leverage cycle, influencing the pricing of risk and the level of risk in the economy. Our analysis focuses on liquidity policies’ implications for household welfare. Within the context of our model, liquidity requirements are preferable to capital requirements, as tightening liquidity requirements lowers the likelihood of systemic distress without impairing consumption growth. In addition, we find that intermediate ranges of risk-free asset supply achieve higher welfare.
    Keywords: liquidity regulation; systemic risk; DSGE; financial intermediation
    JEL: E02 E32 G00 G28
    Date: 2014–12–01
  6. By: Hirtle, Beverly (Federal Reserve Bank of New York); Kovner, Anna (Federal Reserve Bank of New York); Vickery, James (Federal Reserve Bank of New York); Bhanot, Meru (Federal Reserve Bank of New York)
    Abstract: The CLASS model is a top-down capital stress testing framework that projects the effect of different macroeconomic scenarios on U.S. banking firms. The model is based on simple econometric models estimated using public data and also on assumptions about loan loss provisioning, taxes, asset growth, and other factors. We use this framework to calculate a projected industry capital gap relative to a target ratio at different points in time under a common stressful macroeconomic scenario. This estimated capital gap began rising four years before the financial crisis and peaked at the end of 2008. The gap has since fallen sharply and is now significantly below precrisis levels. In the cross-section, firms projected to be most sensitive to macroeconomic conditions have higher capital ratios, consistent with a “precautionary” view of bank capital.
    Keywords: capital; stress testing
    JEL: G01 G17 G21
    Date: 2014–02–01
  7. By: Adrian, Tobias (Federal Reserve Bank of New York)
    Abstract: This paper explores financial stability policies for the shadow banking system. I tie policy options to economic mechanisms for shadow banking that have been documented in the literature. I then illustrate the role of shadow bank policies using three examples: agency mortgage real estate investment trusts, leveraged lending, and captive reinsurance affiliates. For each example, the economic mechanisms are explained, the potential risks emanating from the activities are described, and policy options to mitigate such risks are listed. The overarching theme of the analysis is that any policy prescription for the shadow banking system is highly specific to the particular activity.
    Keywords: shadow bank policies; systemic risk; financial intermediation
    JEL: E44 G00 G01 G28
    Date: 2014–02–01
  8. By: Simon Cornée
    Abstract: In this paper, to begin with, we define soft information as qualitative, subjective information produced by banks through the establishment of long-term lending relationships. We then highlight the importance of soft information for cooperative and social banks in the screening, pricing and monitoring of their borrowers as a result of their institutional features (governance, values, etc.) and the specificities of their clientele. We finally emphasise the value of qualitative (economic, social and/or environmental) factors stemming from the production of soft information in predicting credit default events.
    Keywords: Relationship Lending; Soft Information; Credit Rating; Cooperative and Social Banking
    JEL: G21 L22 M21 P13
    Date: 2014–02–12
  9. By: Giovanni Giusti; Charles Noussair; Hans-Joachim Voth
    Abstract: Major bubble episodes are rare events. In this paper, we examine what factors might cause some asset price bubbles to become very large. We recreate, in a laboratory setting, some of the specific institutional features investors in the South Sea Company faced in 1720. Several factors have been proposed as potentially contributing to one of the greatest periods of asset overvaluation in history: an intricate debt?for?equity swap, deferred payment for these shares, and the possibility of default on the deferred payments. We consider which aspect might have had the most impact in creating the South Sea bubble. The results of the experiment suggest that the company’s attempt to exchange its shares for government debt was the single biggest contributor to the stock price explosion, because of the manner in which the swap affected fundamental value. Issuing new shares with only partial payments required, in conjunction with the debtequity swap, also had a significant effect on the size of the bubble. Limited contract enforcement, on the other hand, does not appear to have contributed significantly.
    Keywords: Financial bubbles, experiments, South Sea bubble, risk-shifting, government debt, equity issuance
    JEL: G01 G12 G14 N23 C92
    Date: 2014–03
  10. By: Peter Koudijs; Hans-Joachim Voth
    Abstract: What determines risk-bearing capacity and the amount of leverage in financial markets? Using unique archival data on collateralized lending, we show that personal experience can affect individual risk-taking and aggregate leverage. When an investor syndicate speculating in Amsterdam in 1772 went bankrupt, many lenders were exposed. In the end, none of them actually lost money. Nonetheless, only those at risk of losing money changed their behavior markedly – they lent with much higher haircuts. The rest continued as before. The differential change is remarkable since the distress was public knowledge. Overall leverage in the Amsterdam stock market declined as a result.
    Keywords: Leverage, collateralized lending, haircuts, personal experience
    JEL: G12 G23 N23 G01 G02
    Date: 2014–03

This nep-cfn issue is ©2014 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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