Fiscal consolidations and bank balance sheets

We empirically investigate the effects of fiscal policy on bank balance sheets, focusing on episodes of fiscal consolidation. To this aim, we employ a very large data set of individual banks' balance sheets, combined with a newly compiled data set on fiscal consolidations. We find that standard capital adequacy ratios such as the Tier-1 ratio tend to improve following episodes of fiscal consolidation: for the median bank in our sample, a 1% of GDP fiscal consolidation increases the Tier-1 capital ratio by around 1.5 percentage points over two years. Our results suggest that this improvement results from a portfolio re-balancing from private to public debt securities which reduces the risk-weighted value of assets. In fact, if fiscal adjustment efforts are perceived as structural policy changes that improve the sustainability of public finances and, therefore, reduce credit risk, the banks' demand for government securities should increase relative to other assets.     

Fiscal consolidations and public debt in Europe

The objective of this paper is to gain insights into the relationship between deficit-reducing policies and the evolution of the debt/GDP ratio. We consider past events of fiscal consolidation in a selected group of EU countries and check what is the associated change of the debt/GDP ratio both from a short- and medium-term perspective. In the analysis, we also differentiate between tax-based and savings-based fiscal consolidations and the pre-Euro and Euro periods. Our results point towards a positive short-term effect, while the medium-term effect turns out to be negative. Savings-based fiscal consolidations result to be less negative on the DGR evolution than tax-based ones. The Euro’s introduction seems not to have altered significantly the relationship studied.     

售贷紧缩的几点教训

美国的这次信贷紧缩危机再次验证了股市的若干教训，重新提出的问题也是老生常谈的问题：金融创新、央行救市以及评级机构[编者按]     

信贷紧缩的几点教训

美国的这次信贷紧缩危机再次验证了股市的若干教训,重新提出的问题也是老生常谈的问题:金融创新、央行救市以及评级机构     

Lessons from the Tequila Crisis

This paper draws several important lessons from the Tequila Crisis of 1994 and 1995. The overriding lesson is that the dynamics of financial crises in emerging market countries differ from those in industrialized countries because institutional features of their debt markets differ. Several policy lessons for emerging market countries also emerge from the analysis: (1) pegged exchange-rate regimes are extremely dangerous, (2) strong prudential supervision of the banking system is critical for prevention of financial crises, (3) financial liberalization must be managed extremely carefully and (4) different policies are needed to promote recovery in emerging market countries than those that are applicable to industrialized countries.     

Lessons from Experiences with High Inflation

In economies where price control has been the rule, the mostserious concern may be recognition of the inflation problem.Beyond the initial correction of subsidies there is the broaderissue of the risk of a serious inflation. This article looksat the problem of high inflation in developing countries inEurope and Latin America and draws lessons from historical experience.It analyzes the dynamics of the interaction among deficit finance,institutional innovation in financial markets, dollarization,and the shortening of wage contracts in high-inflation situations.When stabilization is undertaken, there is neither immediate,spontaneous resumption of longer adjustment periods for wagesand prices nor instant increase of real money demand to noninflationarylevels. Incomes policy—freezing exchange rates, wages,and prices—is advocated as an effective supplement tothe inevitable budget cut to make up for institutional inertiaand facilitate the start of the stabilization process.     

阿根廷的教训

阿根廷政府停止偿还债务或许将改变国际上处理类似经济崩溃事物的惯例,然而变革对于阿根廷却将为时过晚.苏珊·米勒从纽约报道为什么国际货币基金组织最终会对它的老朋友失去信心.     

Lessons from global modelling and modellers

Two key lessons arising from ten years of global modelling are, first, that there are indeed lessons to be learned—eg ‘business as usual’ is not a viable world future, but the will to change economic, political and social structures could indeed create a decent and sustainable standard of living for all; second, many of the lessons are fairly obvious, but there is a great reluctance, even amongst global modellers, to take them into account—eg the real-world importance of politics is rarely represented in models, or the need to take great care not to mislead when publicizing results.     

Lessons from misclassification in international accounting

Classification is a central activity in many sciences, such as chemistry. In social sciences, we cannot achieve the high precision and usefulness of the Mendeleev table of elements, but we can try to avoid poor classification. This paper sets out a method for identifying mis-classification in any field, drawing on the qualitative characteristics for useful information set out in the conceptual framework for financial reporting, particularly faithful representation and relevance. The method is applied first to various scientific fields and then to many classifications in international accounting and to other classifications used by accounting researchers. The causes of poor classification are examined; for example, some classifications are untrue, some are unfair and some are unlikely to be relevant for any important purpose. The implications for researchers are proposed.     

印地麦克银行关闭的启示

2008年7月11日,美国储蓄管理局（Office of Thrift Supervision,OTS）宣布,关闭印地麦克银行（IndyMac Bank,全称为独立国家房贷公司——Independent National Mortgage Corporation）。联邦存款保险公司（FDIC）随即被任命为看护人（conservator）,负责对印地麦克银行的处置。印地麦克银行是美国历史上在OTS监管下破产的最大的储蓄机构（thrift）。FDIC估计,印地麦克银行的处置将耗费FDIC大约40到80亿美元,占FDIC存款保险基金的10％。     

Risk Management Lessons from the Credit Crisis

Risk management, even if flawlessly executed, does not guarantee that big losses will not occur. Big losses can occur because of business decisions and bad luck. Even so, the events of 2007 and 2008 have highlighted serious deficiencies in risk models. For some firms, risk models failed because of known unknowns. These include model risk, liquidity risk, and counterparty risk. In 2008, risk models largely failed due to unknown unknowns, which include regulatory and structural changes in capital markets. Risk management systems need to be improved and place a greater emphasis on stress tests and scenario analysis. In practice, this can only be based on position-based risk measures that are the basis for modern risk measurement architecture. Overall, this crisis has reinforced the importance of risk management.     

Ratings assignments: Lessons from international banks

This paper estimates ordered logit models for bank ratings which include a country index to capture country-specific variation. The empirical findings support the hypothesis that the individual international bank ratings assigned by Fitch Ratings are underpinned by fundamental quantitative financial analyses. Also, there is strong evidence of a country effect. Our model is shown to provide accurate predictions of bank ratings for the period prior to the 2007–2008 banking crisis based upon publicly available information. However, our results also suggest that quantitative models are unlikely to predict ratings with complete accuracy. Furthermore, we find that both quantitative models and rating agencies are likely to produce highly inaccurate predictions of ratings during periods of financial instability.     

Financial Safety Nets: Lessons from Chile

Should governments ever override bank regulators who are attemptingto close down insolvent financial institutions? An analysisof Chile's history shows that time after time from the 1850sto the 1980s, prudential banking regulations were abandonedduring economic crises when attempts to impose tight solvencystandards proved impossible to enforce. Chile's current stringentbanking regulations may prove more durable, but mounting financialdistress is equally likely to lead the government to adopt policiesthat prevent bank failure but undermine the authority of regulators. Bank regulators, including the central bank, are responsiblefor creating a financial safety net to protect depositors againstloss and for enforcing the rules of prudent behavior that arerequired for a stable financial system. Because safety netsoften additionally cover losses to bank owners and borrowers,the support they offer encourages risk-taking by the privatesector an action that may promote financial deepening, but ata high budgetary cost to the government. Poorly designed safetynets may have to be suspended during crises to prevent lossesfrom mounting and to limit the government's liability.      

麦道夫欺诈案对完善金融监管制度的启示

2008年12月,美国纳斯达克股票市场公司前董事会主席伯纳德·麦道夫因涉嫌欺诈被捕.这个案件主体与被害人身份特殊,欺诈规模大,延续时间长.对现行金融监管体制造成了巨大冲击,并为我国完善金融监管制度带来新的启示.     

Insurance customer behavior: Lessons from behavioral economics

In economics it has traditionally been assumed that people make all their decisions like the so‐called homo oeconomicus – that is, maximizing (expected) utility of total wealth. In recent years, economics increasingly recognized that people often exhibit behavioral patterns which are incompatible with the idea of the homo oeconomicus. The field of behavioral economics incorporates insights from the field of psychology to explain discrepancies between predictions of traditional economic theory and actual observed behavior. In this paper, we summarize a selection of well‐established behavioral patterns observed in reality and discuss their relevance for the insurance industry when it comes to better understanding and predicting customer behavior. We also explain that people are not always risk‐averse and give a brief overview over Prospect Theory (probably the most popular behavioral economics alternative to Expected Utility Theory), its shortcomings for predicting behavior over a long time horizon, and its extensions. In total, we point out that, since dealing with risks and insurance products requires complex decision making processes, a deep understanding of the impacts of behavioral factors is essential to better assess and explain costumer behavior.     

Crisis communication. Lessons from 9/11

The sheer enormity of last year's terrorist attacks on the World Trade Center and the Pentagon gave new meaning to the term "crisis management." Suddenly, companies near Ground Zero, as well as those more than a thousand miles away, needed a plan. Because the disasters disrupted established channels not only between businesses and customers but between businesses and employees, internal crisis-communications strategies that could be quickly implemented became a key responsibility of top management. Without these strategies, employees' trauma and confusion might have immobilized their firms and set their customers adrift. In this article, executives from a range of industries talk about how their companies, including Morgan Stanley, Oppenheimer Funds, American Airlines, Verizon, the New York Times, Dell, and Starbucks, went about restoring operations and morale. From his interviews with these individuals, author and management professor Paul Argenti was able to distill a number of lessons, each of which, he says, may "serve as guideposts for any company facing a crisis that undermines its employees' composure, confidence, or concentration." His advice to senior executives includes: Maintain high levels of visibility, so that employees are certain of top management's command of the situation and concern; establish contingency communication channels and work sites; strive to keep employees focused on the business itself, because a sense of usefulness enhances morale and good morale enhances usefulness; and ensure that employees have absorbed the firm's values, which will guide them as they cope with the unpredictable. The most forward-thinking leaders realize that managing a crisis-communications program requires the same dedication and resources they give to other dimensions of their business. More important, they realize that their employees always come first.     

Learning about Risk: Some Lessons from Insurance

This paper argues that in the fundamental subject of financialrisk analysis, some valuable lessons may be drawn from insurance.The probability of ruin, defined as a first passage time, carriesa dynamic element whose absence in Value at Risk is one liability,among others. Extreme value theory, which has been successfullyapplied to insurance shortly after it was introduced in probability,may offer a coherent framework for analyzing the extreme movessuch as the ones observed in recent foreign exchange and financialcrises. Lastly, we show that the genuine hazards generated byglobal capital markets and illustrated by the events of summer1998, generate a market incompleteness that existing modelsof defaultable bonds do not fully address. In contrast, thelong experience of risk premium analysis in the insurance andreinsurance industry, as well as the existence of historicaldata on natural disasters, render the valuation of catastrophebonds less perilous than that of defaultable bonds.     

Collaborative design research: Lessons from continuous auditing

In this paper we discuss Collaborative Design Research – a hybrid methodology for undertaking design science research in collaboration with industry partners – that has been applied to the area of Continuous Auditing and which also has wider applicability to AIS research. Collaborative Design Research has a role at the time in the evolution of a field when early adopting practitioners have made the decision to implement an innovation, but there is as yet no established product or set of best practices that makes it obvious what they should do. We discuss eight key issues facing researchers attempting to do collaborative design research: 1) choice of implementation partner (IP), 2) choice of projects, 3) managing expectations, 4) building on the expertise of the IP, 5) introducing innovation to the IP, 6) project evaluation and reassessment, 7) cost and resource management, and 8) publishing results.     

Financial crises: Lessons from the Nordic experience

The current financial crisis is the 19th such crisis in the post-war period in advanced economies. Recent literature classifies the Nordic crises in Norway, Sweden and Finland in late 1980s and early 1990s among the Big Five crises that have happened before the current crisis, which is now of a global nature. This paper outlines the developments of the Nordic crises, reasons behind them and crisis management by the authorities. Relatively more emphasis is placed on the Finnish crisis, as it was the deepest one. The paper concludes by considering the lessons that can be drawn from the Nordic crises.