Assessing targeted macroprudential financial regulation: The case of the 2006 commercial real estate guidance for banks

In January 2006, federal regulators issued guidance requiring banks with specific high concentrations of commercial real estate (CRE) loans to tighten managerial controls. This paper shows that banks with concentrations in excess of the thresholds set in the guidance subsequently experienced slower growth in their CRE portfolios than can be explained by changes in bank or economic conditions. Moreover, banks above the CRE thresholds tended to have slower commercial and industrial loan growth but faster household loan growth following issuance of the guidance. The results highlight the potentially broad influence that portfolio-based macroprudential regulation might have on bank behavior.     

Financial Deregulation and the Role of Statecraft: Lessons from Britain’s 1971 Competition and Credit Control Measures

Within the financialisation literature, a number of approaches identify the coexistence of financial expansion and productive stagnation. Yet there is no consensus on which direction causality operates between these two phenomena. This impasse has been widened by the lack of attention paid to the role of statecraft strategies in mediating possible causal mechanisms. This article contributes to rectifying this shortcoming by focusing on the governance advantages granted to states through financial deregulation. By presenting archival evidence on Britain’s 1971 Competition and Credit Control deregulation, this article lends support to financialisation accounts that argue that weaknesses in the productive economy spurred financial expansion, yet it also indicates that the state’s desire for depoliticised forms of governance played a crucial role in mediating this relationship. This further suggests that International Political Economy should focus on the strategic manner in which states relate to markets.     

A study on risk retention regulation in asset securitization process

We study the impacts of the recently proposed risk retention regulation for asset securitization, i.e. the issuer has to retain a certain proportion of securitized assets. We also consider the frequently discussed measure to require the issuer disclose certain information of the securitized assets. In a dynamic model with asymmetric information between a risk-averse originating bank and a continuum of risk-averse investors, we find that it is impossible for a flat-rate retention requirement to be optimal for all asset types. Although both risk retention and information disclosure regulations are effective in reducing investors’ informational loss, neither can unconditionally enhance social welfare upon the unregulated case. For both measures, there are associated regulatory cost: risk retention regulation aggravates adverse selection problem because it undermines the channel of informational revelation by the choice of securitization intensity, and information disclosure requirement incurs a signalling cost by distorting banks’ securitization intensity in sending signals. Under an appropriate set of conditions we find that information disclosure requirement complements risk retention regulation when investors are sufficiently risk averse.     

Monetary policy,endogenous transactions,and financial market segmentation

An endogenous financial market segmentation model is constructed to explore the role of costly credit as a medium of exchange in the monetary policy elasticity of financial market activity. Against inflation risk, credit is an alternative insurance device to a cash transfer from the financial market. In equilibrium, credit reduces the financial market activity rate. Monetary policy has redistributive effects across economic individuals. Inflation may not tax financial market non-participants. However, it may tax financial market participants by increasing the financial market activity rate. Welfare may increase and the optimal money growth rate can be positive.     

Macroeconomic Effects of Asset‐Price Shocks in a Globalized Financial Market

In this paper, I study a model in which shocks to asset prices affect the real sector of the economy through a credit channel. As financial markets become internationally integrated, the economy becomes less vulnerable to domestic asset‐price shocks, but more vulnerable to foreign asset‐price shocks. To the extent that monetary policy stabilization is feasible and desirable, the globalization of financial markets shifts the focus of monetary policy from domestic asset prices to worldwide asset prices.     

信用保险参与农产品经营的探讨

新型城镇化实现的前提是“三农”问题的有效解决,而解决“三农”问题的关键在于农产品企业的发展壮大.本文从农产品生产和经营特点入手,剖析农产品企业在生产经营中遇到的各种问题,从实际案例出发,探讨信用保险在农产品企业经营中发挥的作用以及存在的问题,并提出相应的解决思路.     

Credit market segmentation,essentiality of commodities,and supermodularity

We consider incomplete market economies where agents are subject to price-dependent trading constraints compatible with credit market segmentation. Equilibrium existence is guaranteed when either commodities are essential, i.e, indifference curves through individuals’ endowments do not intersect the boundary of the consumption set, or utility functions are concave and supermodular. The smoothness of mappings representing preferences, financial promises, or trading constraints is not required. Hence, we may include in our framework economies where ambiguity is allowed and agents maximize the minimum expected utility over a set of priors, or where markets include non-recourse collateralized loans.     

Cross-hedging strategies between CDS spreads and option volatility during crises

This paper presents a joint analysis of the term structure of credit default swap (CDS) spreads and the implied volatility surface for five European countries from 2007 to 2012, a sample period covering both the Global Financial Crisis (GFC) and the European debt crisis. We analyze to which extent effective cross-hedges can be performed between the credit and equity derivatives markets during these two crises. We find that during a global crisis a breakdown of the relationship between credit risk and equity volatility may occur, jeopardizing any cross-hedging strategy, which happened during the GFC. This stands in sharp contrast to the more localized European debt crisis, during which this fundamental relationship was preserved despite turbulent market conditions for both the CDS and volatility markets.     

Business cycle implications of mortgage spreads

How do aggregate quantities at the business cycle frequency respond to shocks to the spread between residential mortgage rates and government bonds? Using a structural VAR approach, we find that mortgage spread shocks impact the real economy by both economically and statistically significant magnitudes: a 100 basis point decline in the spread causes a peak increase in consumption, residential investment and GDP by 1.6 percent, 6.2 percent and 1.9 percent, respectively. Presumably, these effects are magnified when the policy rate is held fixed, as was the case in the US during the recent implementation of unconventional monetary policy.     

Pricing vulnerable options with correlated jump-diffusion processes depending on various states of the economy

In this paper, we use a Markov-modulated regime switching approach to model various states of the economy, and study the pricing of vulnerable European options when the dynamics of the underlying asset value and the asset value of the counterparty follow two correlated jump-diffusion processes under regime switching. The correlation is modelled by both the diffusion parts and the pure jump parts which describe the uncertainty of the value of the risky assets. We develop a method to determine an equivalent martingale measure and a parsimonious representation of the risk-neutral density is provided. Based on this, we derive an analytical pricing formula for vulnerable options via two-dimensional Laplace transforms, and implement the formula through numerical Laplace inversion.