Securitization without risk transfer

We analyze asset-backed commercial paper conduits, which experienced a shadow-banking run and played a central role in the early phase of the financial crisis of 2007–2009. We document that commercial banks set up conduits to securitize assets worth $1.3 trillion while insuring the newly securitized assets using explicit guarantees. We show that regulatory arbitrage was an important motive behind setting up conduits. In particular, the guarantees were structured so as to reduce regulatory capital requirements, more so by banks with less capital, and while still providing recourse to bank balance sheets for outside investors. Consistent with such recourse, we find that conduits provided little risk transfer during the run, as losses from conduits remained with banks instead of outside investors and banks with more exposure to conduits had lower stock returns.     

Dark Markets,by Darrell Duffie

This paper develops a method for selecting and analysing stress scenarios for financial risk assessment, with particular emphasis on identifying sensible combinations of stresses to multiple factors. We focus primarily on reverse stress testing – finding the most likely scenarios leading to losses exceeding a given threshold. We approach this problem using a nonparametric empirical likelihood estimator of the conditional mean of the underlying market factors given large losses. We then scale confidence regions for the conditional mean by a coefficient that depends on the tails of the market factors to estimate the most likely loss scenarios. We provide rigorous justification for the confidence regions and the scaling procedure when the joint distribution of the market factors and portfolio loss is elliptically contoured. We explicitly characterize the impact of the heaviness of the tails of the distribution, contrasting a broad spectrum of cases including exponential tails and regularly varying tails. The key to this analysis lies in the asymptotics of the conditional variances and covariances in extremes. These results also lead to asymptotics for marginal expected shortfall and the corresponding variance, conditional on a market stress; we combine these results with empirical likelihood significance tests of systemic risk rankings based on marginal expected shortfall in stress scenarios.     

Striking issues: from labour process to industrial dispute at Grunwick and Gate Gourmet

This article applies a feminist intersectionality approach to analysing the dynamics of the labour process and labour in two workplaces where Asian women workers were in the forefront of resistance. It stresses the importance of understanding the links between different aspects of workers' identities.     

Valuing groundwater recharge through agricultural production in the Hadejia-Nguru wetlands in northern Nigeria

This study applies a production function approach to value the groundwater recharge function of the Hadejia‐Nguru wetlands in northern Nigeria. The groundwater recharge function supports dry season agricultural production which is dependent on groundwater abstraction for irrigation. Using survey data this paper first carries out an economic valuation of agricultural production, per hectare of irrigated land. We then value the recharge function as an environmental input into the dry season agricultural production and derive appropriate welfare change measures. Welfare change is calculated using the estimated production functions and hypothetical changes in groundwater recharge and hence, groundwater levels. By focusing on agricultural production dependent solely on groundwater resources from the shallow aquifer, this study establishes that the groundwater recharge function of the wetlands is of significant importance for the floodplain.     

IMPACT OF RISING FUEL COST ON PERISHABLE PRODUCT PROCUREMENT

This paper models the dynamic interactions between product prices at different regional markets and input costs and derives cost‐price thresholds that can be used to evaluate alternative product sourcing and procurement strategies. The model is tested empirically by estimating a vector autoregressive model using data from the U.S. leafy green industry.     

A model of liquidity hoarding and term premia in inter-bank markets

Financial crises are associated with reduced volumes and extreme levels of rates for term inter-bank loans, reflected in one-month and three-month LIBOR. We explain such stress by modeling leveraged banks' precautionary demand for liquidity. Asset shocks impair a bank's ability to roll over debt because of agency problems associated with high leverage. In turn, banks hoard liquidity and decrease term lending as their rollover risk increases over the term of the loan. High levels of short-term leverage and illiquidity of assets lead to low volumes and high rates for term borrowing. In extremis, inter-bank markets can completely freeze.     

Dealer financial conditions and lender-of-last-resort facilities

We examine the financial conditions of dealers that participated in two of the Federal Reserve's lender-of-last-resort (LOLR) facilities—the Term Securities Lending Facility (TSLF) and the Primary Dealer Credit Facility (PDCF)—that provided liquidity against a range of assets during 2008–2009. Dealers with lower equity returns and greater leverage prior to borrowing from the facilities were more likely to participate in the programs, borrow more, and, in the case of the TSLF, at higher bidding rates. Dealers with less liquid collateral on their balance sheets before the facilities were introduced also tended to borrow more. The results suggest that both financial performance and balance sheet liquidity play a role in LOLR utilization.     

Delays and partial agreements in multi-issue bargaining

We model a situation in which two players bargain over two pies, one of which can only be consumed starting at a future date. Suppose the players value the pies asymmetrically: one player values the existing pie more than the future one, while the other player has the opposite valuation. We show that players may consume only a fraction of the existing pie in the first period, and then consume the remainder of it, along with the second pie, at the date at which the second pie becomes available. Thus, our model features a special form of bargaining delay, in which agreements take place in multiple stages. Such partial agreements arise when players are patient enough, when they expect the second pie to become available soon, and when the asymmetry in their valuations is large enough.