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The Bank Capital Regulation (BCR) Model

The Bank Capital Regulation (BCR) Model

House-price appreciation by the model of Goodhart-Kashrap-Tsomocos (2012) is impressive. Reducing deposit defaults induces more savings circulated by the bank and less self-insurance and by the end, the reduction in self-insurance reduces the number of houses for sale in a good state, which means that house-price appreciation in the boom is higher than otherwise. Most of all, the market incompleteness with deadweight costs of default distorts the housing market. Wealthy agents endowed with houses make their saving decisions accounting for the possibility that deposits will not be fully repaid. When default penalties for banks are low, then households internalize risks putting less wealth into the banking system and hold more in the form of houses. This choice increases the supply of houses that is available in boom, which lowers house prices and raise welfare for agents entering the housing market at that time. To insure that house price reduction in the bad state of the world, households P and F are also presumed to have lower wealth. Likewise, the non-bank is endowed with lower capital in period 1 as well as in the bad state of the world. This model describes the house bubble
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A model of adaptive relationship between the entrepreneur and the bank

A model of adaptive relationship between the entrepreneur and the bank

Couderc Jean-Pierre 2 , Assistant Professor, Sup’Agro Montpellier Abstract: In this paper, we present the relationship between the bank and the entrepreneur as an adaptive relationship. We fit the Myers’ model of underinvestment (Myers (1977)) to a multi-period model and introduce the concepts of bargaining power and reputation. In the model, the project value, for the entrepreneur, is directly linked to his bargaining power over the banker through both the managerial slack and the property rights that the banker will accept to leave. As reputation interacts with bargaining power and property rights, the entrepreneur can undertake a sub-optimal investment in the first period if he expects that this can increase his probability to benefit from a reputation effect in the second round of investment and thus optimize the investment process. This model of bank-entrepreneur relationship is relevant for small scale business with high capitalistic intensity and therefore highly leveraged. Results plead for a special place of the entrepreneurship finance in the commercial bank and the irrelevance of credit scoring approaches for this type of business.
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Courting Gentility: Handel at the Bank of England

Courting Gentility: Handel at the Bank of England

name, and both the seller and buyer would come forward to sign the transfer form. The buyer, who needed to have the purchase money at hand, then paid the seller and received a printed receipt. 33 Early in the century it was commonplace to use a surrogate for such financial dealings, and Handel authorized proxies to collect the dividends on his South Sea stock in 1716. The practice gave rise to fraud, however, and in 1721 the South Sea Company and the Bank of England placed stringent restrictions on the use of power of attorney for those who lived within greater London. As a result, the transfer forms in almost all cases preserve the signatures of both parties in a transaction. Unfortunately, of the original 32,233 volumes of transfer books, only 10,846 survive, the remainder having been destroyed (pulped) in a planned winnowing of the Bank’s records. Generally speaking, the decisions about which volumes to keep and which to destroy were made in terms of full sets of records. For the period of Handel’s lifetime, therefore, no transfer books survive for South Sea Annuities (so that no transfers are extant for Handel’s account that ran from 1723 to 1732 or that from 1743 to 1748), but they do survive mostly complete for Bank and Consolidated stock. 34
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A Test for the Presence of Central Bank Intervention in the Foreign Exchange Market With an Application to the Bank of Canada

A Test for the Presence of Central Bank Intervention in the Foreign Exchange Market With an Application to the Bank of Canada

Mots clés : paramètre de nuisance non identifié, équations simultanées non linéaires, réserves de change, fonctions de réaction de la politique. We propose a general non-linear simultaneous equations framework for the econometric analysis of models of intervention in foreign exchange markets by central banks in response to deviations of exchange rates from target levels. We consider the instrumental variables estimation of possibly non-linear response functions and tests of intervention when the functional form may be non-linear, asymmetric, and may contain unknown shape parameters. The methodology applies techniques developed for testing in the presence of nuisance parameters unidentified under a null hypothesis to a nonlinear simultaneous equations model. We report the results of an empirical analysis of activity of the Bank of Canada, for the period from 1953-2006, with regard to the Canada-U.S. exchange rate, with changes in foreign reserves proxying for intervention activity.
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The evolutive dynamic of the bank vole (Myodes glareolus) : Spatial structure of the morphometric variations

The evolutive dynamic of the bank vole (Myodes glareolus) : Spatial structure of the morphometric variations

Introduction In this study, we investigated the phylogeographic history of the bank vole (Myodes glareolus) in Italy. The distribution range of the bank vole is largely homogenous from Western Europe to Russia except in the Italian peninsula, where bank vole populations are currently fragmented in three areas corresponding to the Central Apennines, the Southern Apennines, and the Gargano promontory (Fig. 1). Bank voles from Gargano live in an unfragmented decidious forest of 11 000 hectares (between 270m and 830m of altitude) located on the Eastern-North part of the Gargano promontory (max. altitude of 1055 m). This forest called the ‘foresta umbra’ is considered as a relict place for deciduous trees in the arid regions of Southern Italy and constitutes a spot in the distribution range of the bank vole (Fig. 1). The Gargano promontory is inserted between the Adriatic Sea and the Apulian plain and is characterised by a very complex paleogeographic history. This mountainous area was transformed in a true island during the marine transgression at the beginning of the Pliocene (5.3 Mya; Freudenthal, 1976). During that time of isolation many species evidenced extreme evolution of their phenotype, making the Pliocene endemic fauna of Gargano a typical example of evolution in a context of insularity. For example, the biggest insectivora of the world (the giant hedgehog Deinogalerix, Freudenthal, 1972) and a representative of a new family of ruminants (Hoplitomerys, Leinders, 1984) were both found in Gargano. Regarding rodents species, the genus Microtia also displayed insular gigantism (Parra-Millien et al., 1999).
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The Bank Capital Regulation (BCR) Model

The Bank Capital Regulation (BCR) Model

House-price appreciation by the model of Goodhart-Kashrap-Tsomocos (2012) is impressive. Reducing deposit defaults induces more savings circulated by the bank and less self-insurance and by the end, the reduction in self-insurance reduces the number of houses for sale in a good state, which means that house-price appreciation in the boom is higher than otherwise. Most of all, the market incompleteness with deadweight costs of default distorts the housing market. Wealthy agents endowed with houses make their saving decisions accounting for the possibility that deposits will not be fully repaid. When default penalties for banks are low, then households internalize risks putting less wealth into the banking system and hold more in the form of houses. This choice increases the supply of houses that is available in boom, which lowers house prices and raise welfare for agents entering the housing market at that time. To insure that house price reduction in the bad state of the world, households P and F are also presumed to have lower wealth. Likewise, the non-bank is endowed with lower capital in period 1 as well as in the bad state of the world. This model describes the house bubble
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The Bank capital regulation (BCR) model

The Bank capital regulation (BCR) model

House-price appreciation by the model of Goodhart-Kashrap-Tsomocos (2012) is impressive. Reducing deposit defaults induces more savings circulated by the bank and less self-insurance and by the end, the reduction in self-insurance reduces the number of houses for sale in a good state, which means that house-price appreciation in the boom is higher than otherwise. Most of all, the market incompleteness with deadweight costs of default distorts the housing market. Wealthy agents endowed with houses make their saving decisions accounting for the possibility that deposits will not be fully repaid. When default penalties for banks are low, then households internalize risks putting less wealth into the banking system and hold more in the form of houses. This choice increases the supply of houses that is available in boom, which lowers house prices and raise welfare for agents entering the housing market at that time. To insure that house price reduction in the bad state of the world, households P and F are also presumed to have lower wealth. Likewise, the non-bank is endowed with lower capital in period 1 as well as in the bad state of the world. This model describes the house bubble
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Environmental Risks and Bank Liability

Environmental Risks and Bank Liability

to safety care 30 and it would be valuable to integrate this consideration. Beyond these directions of theoretical research, we would like to summarize some preliminary practical implications we can derive from our analysis. Clearly, the respon- sibility system should be well de ned ex ante in view of its interference with the banks' lending policy. The economic analysis leads us to distinguish two cases: either there are no serious agency costs for the bank or these costs are signi cant. In the rst case, if the environmental risks are well de ned, full responsibility of the bank is appropriate to ensure the internalization of the externality. If those costs are ill de ned, then full responsibility remains appropriate if the cost for the bank of de ning precisely the en- vironmental risks is small enough. However, there are cases or industries where such information acquisition is likely to be very costly (there is also a free rider problem in de ning those risks) and would precipitate the withdrawal of external (banking) nancial resources from those industries. One could advise that the government either clari es those risks or gives up making the banks responsible or at least fully responsible. We have shown in this paper that when agency costs are signi cant, partial responsibility should replace full responsibility. Partial responsibility balances the need to internalize the externality and the reluctance of banks to lend. Finally, in the case of risks which are not well de ned, and therefore of an insurance market which cannot be relied upon and of possible excessive prudence of banks, it seems inevitable that ex ante authorization for carrying those risky activities should be obtained from the social regulator and that indemni cation of the costs of an accident be covered by a governmental Superfund.
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The Panic of 1857 as a Bank-Initiated Banking Panic

The Panic of 1857 as a Bank-Initiated Banking Panic

The expected proÞt of this mutual bank is nil because the mutual bank maximizes the expected utility of depositors. Following Jacklin and Bhat- tacharya (1988), we interpret the deposit contract deÞned by equations (9) to (14) as follows. The uncertain second period return reßects the fact that the bank may not be able to make its promised second-period payment in full because it has invested in a risky technology. The bank promises an amount r 2H that it will be able to pay only if e R = R(H). If e R = R(L), the
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The governance of the World Bank : analysis and implications of the decisional power of the G10

The governance of the World Bank : analysis and implications of the decisional power of the G10

Being responsible for the running of the Bank’s general operations, the Administrators play three key parts: they approve funding projects submitted to them by the President; they decide on the general policy that guides the operations of the Bank and its direction; finally they must report back to the Governors (Woods, 2000 and WB, 2000). Each meeting requires a quorum of Administrators holding at least 50% of votes. 30 In 2005 the WB Board was composed of 24 members. All the Administrators have as background the Treasury, the Central Bank, a stabilisation fund or another revenue agency. 31 Within the Executive Board the representation of member States is mixed and indirect. More precisely, five directors are appointed by the five main shareholders (USA, Japan, Germany, France, UK) and the others are brought together in groups, with each one represented by an Administrator elected by one or several member States. The statutes of the IBRD or the IDA never mention the notion of groups which makes the whole issue particularly foggy. As Leech and Leech (2003) make a note of, groups have no formal existence and the way they function is not a matter of worry for the WB. Nevertheless according to Woods (forthcoming) and the WB (2005), member states voluntarily get together in groups. 32 All Administrators are elected or appointed by the Governors, every two years. Those that are appointed by the five main shareholders hold the same voting weight affected to their country and those that are elected hold the same total voting weight as the group they belong to. The composition and structure of the IBRD groups are identical to those of the IDA: whatever the institution at hand, three main types of groups appear: those that are largely dominated by one country, those that are led by several dominant countries and those within which the distibution of votes is more even. 33 If one sets aside China, the Russian Federation and Saoudi Arabia, there are 16 elected Directors representing groups of countries within the Executive Board. 34 It is then possible to distinguish two categories of groups according to the
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Resuming bank lending in the aftermath of the Capital Purchase Program

Resuming bank lending in the aftermath of the Capital Purchase Program

Results also suggest that in the period before 2007 bailed-out banks are reluctant to translate additional capital into new mortgage loans preferring instead to support commercial and industrial lending. Recall that in Isyuk, 2013a it was found that the growth rates of real estate mortgage loans are highly and negatively correlated to the growth rates of commercial and industrial loans. This fact was interpreted as a ”specialisation” of the bank according to the dominant loan types in the bank’s portfolio. That interpretation suggests that during the crisis the banks specialised in commercial and industrial lending with an additional unit of capital tend to offer more loans than the banks specialised in mortgage lending. Moreover, it also shows that obtained results are in line with those from Isyuk, 2013a. In the latter one it was reported that banks that specialised in commercial and industrial loans were more likely to be bailed out, while at the same time they tended to exhibit a higher probability of repurchasing their shares from the Treasury than other banks. In that sense it is not surprising that these banks were more likely to expand the lines of commercial and industrial loans.
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The Dynamics of Bank Business Models in the ASEAN Banking Sector

The Dynamics of Bank Business Models in the ASEAN Banking Sector

Chapter 1. Introduction 1.8.2. Methodology The empirical investigation for the bank business models is constructed by using three different proxies: income and funding activities (Demirgüç-Kunt and Huizinga, 2010; Köhler, 2015); banks’ diversification indexes (Curi et al., 2015; Elsas et al., 2010); and multidimensional approaches by using reduced k-mean clustering (De Soete and Carroll, 1994). In Chapter 3, the income and funding activities is applied to calibrate the business model so as to examine the relationship between bank market power and banking business models as well as the impact of banking business models on banking stability and performance. In the calibration of the market power, the Lerner index (Berger et al., 2009; Turk Ariss, 2010) is used for the measure. For the banking stability measure, the Z- index, risk-adjusted return on equity (RROE), and risk-adjusted return on assets (RROA) are used as proxies (see Köhler, 2015); meanwhile, for banking performance, the standard performance measures of return on equity (ROE) and return on assets (ROA) are used. In the estimation procedure, the fixed effects model is used for the unbalanced panel data. Furthermore, to account for the endogeneity problem, the system generalized method of moments (system GMM) is incorporated into the analysis (Arellano and Bover, 1995; Blundell and Bond, 1998). In the analysis for Chapter 3, all the bank sample data is used; this comprises 278 banks and 1968 observations from 2002 to 2015.
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Financing the newsvendor with preferential credit: bank vs. manufacturer

Financing the newsvendor with preferential credit: bank vs. manufacturer

In our work, we also study heterogeneous bank’s and manufacturer's risk preferences to the retailer's default. The bank and manufacturer offer preferential credit to attract retailer’s financing. Due to the constraint of working capital, the retailer who face with stochastic market demand could not pay back the loan and interest when risk event happens. In this case, it will cause default on their payments. The mostly related article compared to our paper is Kouvelis and Zhao (2017). However, Kouvelis and Zhao (2017) consider the credit rating to yield different discount interest rate financing. They ignore the risk preference’s effect and the different risk preferences impacts between the bank and the manufacturer, which is significantly essential to inventory decisions. The risk-averse may impact the operational condition of retailers as many works proposed (Gan et al., 2005; Choi et al., 2008 and Yang et al., 2018). We consider this perspective to examine the effect of the supply chain when the default event happens. We find that preferential credit may not particularly benefit the retailer under trade credit. With portfolio credit, the retailer's situation would be worse compared to trade credit when he faces higher manufacturers' risk preference level.
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Desperately seeking model countries: The World Bank in Vietnam

Desperately seeking model countries: The World Bank in Vietnam

Measurement Studies (LSMS) survey matrix, which the Bank had first developed and promoted in the developing countries in the mid-1980s. The Bank’s approach for supporting statistical production consists of financing the launching of new surveys in order to create a demonstration effect. But the objective is to pull out afterwards, so that the national institutions can finance themselves and therefore “own” these new surveys. This survey was conducted a second time in 1997/1998 before being institutionalised in 2002, with a substantially enlarged sample and the national budget paying for and hence stabilising the survey through to 2010. To date, four waves of VHLSS have been conducted at regular intervals in the 2000s (2002, 2004, 2006 and 2008). In addition to the Bank’s technical assistance with the basic survey, it was also behind the survey’s inclusion of targeted subject modules on what are deemed fundamental issues such as land tenure, household businesses, education, health, nutrition, vulnerability and governance. And given the VHLSS’s reputation with the Bank and, via the Bank, with the academic community as one of the best surveys in the world and Vietnam’s reputation as a benchmark country, many renowned economists have drawn on it for their research work. The survey plays a particularly important role in Vietnam since it supplies the official poverty figures that serve as the reference for international comparisons 10 , most of the indicators on the MDGs and the Vietnam Development Goals (MDGs tailored to Vietnam) and a large number of SEDP performance indicators.
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Bank Leverage Regulation and Macroeconomic Dynamics

Bank Leverage Regulation and Macroeconomic Dynamics

α . (15) Expression (15) provides intuition about the way banks adjust their monitoring inten- sity µt to comply with the regulatory requirements. The left-hand side of the expression is the leverage imposed by the regulator, while the right-hand side shows how the monitoring decisions of banks help achieve it. Consider first a bank monitoring at very low intensity, with µt → 0. Moral hazard on the entrepreneurial side worsens but eventually reaches its maximum extent B. Meanwhile, the very low monitoring intensity µt decreases the moral hazard problem on the bank side considerably, reducing dramatically the bank capital that must be engaged into lending. As a result, the ratio of outside funds to bank capital, d t /a t rises. In effect banks are lending very little, but investing even less of their own capital in the projects, so that leverage is very high. As the intensity of bank monitoring increases, moral hazard on the entrepreneurial side, captured by b(µ t ), decreases so that attracting loanable funds becomes easier and the ability of banks to lend increases. However, moral hazard on the bank side increases and outside investors now require that banks contribute an increasing portion of each financed project with their own capital. As a consequence, bank leverage decreases. The assumed properties on the schedule b(µt) ensure that a single value of µt exists that achieves the regulated leverage. Figure 2 illustrates the situation by graphing regulated and achieved leverage as a function of µ t , as well as the resulting choice for monitoring intensity.
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Bank Leverage Regulation and Macroeconomic Dynamics

Bank Leverage Regulation and Macroeconomic Dynamics

tively. Entrepreneurs have the technology to produce capital goods but require external funds. Households provide these funds via the intermediation of banks, who alone can monitor entrepreneurs. Two sources of moral hazard are present. The first one arises because entrepreneurs can influence their technology’s probability of success and may choose projects with a low probability of success, to enjoy private benefits. Banks can monitor and mitigate this moral hazard problem, with more intense monitoring lessening moral hazard problem. Since the bank’s monitoring technology is imperfect, some moral hazard always remains and as a complement to monitoring, banks require that entrepreneurs invest their own net worth in the projects they undertake. The second moral hazard problem arises because bank monitoring is private and costly. As a result, banks might be tempted to monitor entrepreneurs less than agreed to economize on costs, knowing that any resulting risk in their loan portfolio would be mostly borne by the households providing the bulk of their loanable funds. To mitigate the impact of this second source of moral hazard, banks are compelled to invest their own net worth (their capital) in entrepreneurs’ projects.
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Chase Global Markets: Defining New Business Models in the Investment Bank Industry

Chase Global Markets: Defining New Business Models in the Investment Bank Industry

commerce opportunities. These e-commerce leaders reported to their business unit heads, and also reported on a dotted line to Lack. The e-Capital Markets team itself was comprised of mostly technologists, who developed applications and coordinated business unit initiatives. Most of these technologists reported on a dotted line to Global Markets’ head of information technology. Through this integrated, matrixed approach, Global Markets management intended to leverage existing client and product knowledge in its e-commerce ventures. Global Markets used a three-pronged attack in its e- commerce strategy: offensive, defensive, and efficiency initiatives. Offensive initiatives were intended to gain market share where Chase had not traditionally been a leader, and thus bring new revenues into the bank. Defensive initiatives attempted to preempt competitors’ moves into markets where Chase had traditionally dominated. Efficiency initiatives delivered cost savings to the bank from customer self-service or from straight- through processing that squeezed costs out of back office processes.
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Bank Ownership and Credit Cycle: the lower sensitivity of public bank lending to the business cycle

Bank Ownership and Credit Cycle: the lower sensitivity of public bank lending to the business cycle

∗ I am grateful to Jean Imbs, Xavier Ragot and Romain Rancière for guidance, as well as Vincent Bouvatier, Régis Breton, Balazs Egert, Benjamin Klaus, Mathias Le, Thomas Piketty and seminar participants at the Bank of France, the Paris School of Economics, the CSAEM (London), the days "Risks in Finance" (Orléans University), the ADRES-AFSE (Strasbourg University) and the Conference on International Macroeconomics and Financial Econometrics (Nanterre University) for helpful comments on previous drafts. This paper builds on my master dissertation defended in June 2011. I gratefully acknowledge financial support from the Bank of France. The opinion expressed herein may not reflect the position of the Bank of France. Any remaining errors are mine.
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Corporate social responsibility and bank efficiency

Corporate social responsibility and bank efficiency

as well as banks that need to improve the management of their inputs and outputs. Second, we apply the DEA Dynamic Network (DEA-DN, henceforth) model to estimate efficiency scores. Most previous studies estimate efficiency using a basic DEA model that focuses on a single period. This can be a significant limitation, especially for the banking industry. Indeed, the basic DEA model does not enable the dynamic effect of performance over time to be traced (Tsionas et al., 2015). When the network and dynamic models are combined, a more comprehensive analysis is obtained since the model takes into account the dynamic change in efficiency between two periods and estimates the efficiency of each sub-process in the production process. This method is the most appropriate when it comes to assessing the performance of banks that implement CSR policies since the performance of these activities are seen over the long term and DEA-DN provides just this long-term assessment. Third, we study an international sample of banks. This allows us to differentiate between developed and developing countries. In doing so, our study follows the work of Finger et al. (2018). However, our study differs from theirs in various respects. First, we use technical efficiency as a performance measure instead of univariate measures (e.g., ROE, ROA, NII). Second, we measure the impact of actual CSR performance while they study the impact of adopting the Equator Principles (EP). These are very different indicators especially given the fact that adopting EP can be a form of greenwashing (Finger et al., 2018). Finally, the international nature of our study also enables us to assess the extent to which countries’ institutional environment and stakeholder orientation shape the CSR-efficiency relationship.
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The End of Bank Secrecy? An Evaluation of the G20 Tax Haven Crackdown

The End of Bank Secrecy? An Evaluation of the G20 Tax Haven Crackdown

The idea of the test is simple: if a confounding trend were driving our results, then treaty signature should be associated with a subsequent lower growth of the haven activ- ities that are unrelated to treaties. So we study how those unrelated activities evolve in the “treaty” and “no treaty” groups. We focus on the inter-bank activities of tax havens. Haven-based banks receive large amount of deposits from foreign banks, which they use in turn to grant loans. Interbank deposits received by tax havens are unrelated to per- sonal tax evasion, so they should not be affected by information exchange agreements. But they are sensitive to the international business cycle, to domestic conditions in the havens, and more generally to any trend that could potentially confound our analysis of treaties. In col. (1)-(2) of Table 4, we run the same regression for interbank deposits as we did for the deposits owned by “non-banks” in col. (2) of Table 1 and col. (2) of Table 2, our core specifications. The results show that treaties have zero effect on interbank deposits. In other words, interbank deposits have evolved similarly in the “treaty” and “no-treaty” pairs. The statistically significant effect of treaties on “non-bank” deposits is thus unlikely to be driven by an omitted differential time trend.
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