The impact of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 repo ‘safe harbor’ provisions on investors

ABSTRACT

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 significantly expanded the exemptions from the normal workings of the U.S. Bankruptcy Code. Using a large sample of U.S. banks, we study investors’ reaction to news about the promulgation of the BAPCPA repo ‘safe harbor’ provisions and the influence extending such exemptions to repos collateralized by riskier collateral had on equity market information asymmetry. We find a negative market reaction to news events about the promulgation of BAPCPA, which subsequent cross-sectional analysis suggests is at least partly driven by repo exposure. This finding suggests that investors perceived the increase in finance risk from the extension of the ‘safe harbor’ provisions as dominating the perceived gain from accessing cheaper finance. Further, we find that the promulgation of BAPCPA gave rise to increased information asymmetry for banks with repo exposure.     

Sharing information in the credit market: Contract-level evidence from U.S. firms

We investigate the impact of lenders' information sharing on firms' performance in the credit market using rich contract-level data from a U.S. credit bureau. The staggered entry of lenders into the bureau offers a natural experiment to identify the effect of lenders' improved access to information. Consistent with the predictions of 35 and 36 and Pagano and Jappelli (1993), we find that information sharing reduces contract delinquencies and defaults, especially when firms are informationally opaque. The results also reveal that information sharing does not reduce the use of guarantees, that is, it may not loosen lending standards.     

The interbank market after the financial turmoil: Squeezing liquidity in a “lemons market” or asking liquidity “on tap”

After August 2007 the plumbing system that supplied banks with wholesale funding, the interbank market, failed because toxic assets obstructed the pipes. Banks were forced to squeeze liquidity in a “lemons market” or to ask for liquidity “on tap” from central banks. This paper disentangles the two components of the 3-month Euribor–Eonia swap spread, credit and liquidity risk and then evaluates the decomposition. The main finding is that credit risk increased before the key events of the crisis, while liquidity risk was mainly responsible for the subsequent increases in the Euribor spread and then reacted to the systemic responses of the central banks, especially in October 2008. Moreover, the level of the spread between May 2009 and February 2010 was influenced mainly by credit risk, suggesting that European banks were still in a “lemons market” and relied on liquidity “on tap” even before sovereign debt crisis unfolded in Europe.     

The heterogeneity of carbon Kuznets curves for advanced countries: comparing homogeneous,heterogeneous and shrinkage/Bayesian estimators

We investigate Carbon Kuznets Curves (CKC) relationships for advanced countries grouped in policy relevant groups – North America and Oceania, South Europe, North Europe – by means of various homogeneous, heterogeneous and shrinkage/Bayesian panel estimators. We try to provide an answer to the question ‘how sensitive are the CKC estimates to changes in the level of parameters' heterogeneity?’. We do find that in coherence with their ‘policy and economic’ commitment to carbon reductions and environmental market-based instruments implementation, bell shapes are present only for northern EU, which leads the group of advanced countries. The other two lag behind. We show for the first time that CKC shapes are present if we net out Europe of the southern and less developed countries. This is coherent with the Kuznets paradigm. The negative side of the tale is that they characterize a bunch of few countries. Other advanced countries lag behind and are far from reaching a CKC dynamics. Heterogeneous and Bayesian estimators clearly show this, with the EU presenting turning points closely around $13?000 per capita Gross Domestic Product (GDP). Heterogeneous panel estimates also show that for lagging countries presumed bell shapes turn into linear relationships. The stability of outcomes across models is stronger when we compare heterogeneous rather than homogeneous models. If it is compared with other studies, our analysis highlights a relative lower variability across specifications.     

On the dynamics of inflation persistence around the world

We study the dynamics of inflation persistence in 45 countries for the period 1960–2008 using a recently developed test for multiple changes in persistence, which decomposes the sample information between adjacent I (0) and I (1) periods. We find that: (i) inflation persistence and average inflation tend to fall and rise at the same time; (ii) in some countries there are changes in the level of inflation which do not seem to be related to changes in inflation persistence; (iii) around half of the countries analyzed do not present any burst of I (1) behavior, and hence have stationary inflation throughout; (iv) for the other half, we detect switches of the type I (0) ? I (1) ? I (0), hence, inflation persistence, when it has occurred, has been temporal; and, (v) for about half of the countries in which inflation has presented I (1) behavior, persistent inflation lasted more than a decade. In addition, we find that in the last 50 years there have been mainly two episodes where long bursts of I (1) inflation took place simultaneously among groups of countries. In general, the “Great Inflation” occurred during the seventies and eighties in advanced economies, whereas it occurred during the eighties and nineties in emerging economies, particularly in Latin America.     

Spanish regions catching-up to Europe: an analysis based on the IB-MPI unit root procedure

This article investigates the pair-wise convergence hypothesis of 17 Spanish regions with respect to the European Union (EU) and Euro-Zone (EZ). Several definitions of convergence are taken into account. The IB-MPI unit root testing procedure is then applied. A simultaneous approach based on the gap in levels and logs is developed to study convergence. The empirical results show incomplete catching-up in six cases with respect to both EU and EZ, and complete catching-up in nine with respect to EU and four with respect to EZ. When taking into account the behaviour of both gaps and loggaps, we further get four cases of cointegrated regions with respect to EZ and only one with respect to EU. Finally, there are four regions that diverge with respect to EU, but do converge with respect to the EZ. Only Baleares diverges with respect to both of them.     

Cross-Country Polarisation in CO2 Emissions Per Capita in the European Union: Changes and Explanatory Factors

We analyse the degree of polarisation in the international distribution of CO₂ emissions per capita in the European Union. It is analytically relevant to examine the degree of instability inherent to a distribution and, in the analysed case, the likelihood that the distribution and its evolution will increase or decrease the chances of reaching an agreement on climate policy. Two approaches were used to measure polarisation: the endogenous approach, in which countries are grouped according to their similarity in terms of emissions, and the exogenous approach, in which countries are grouped geographically. Our findings indicate a clear decrease in polarisation since the mid-1990s, which can essentially be explained by the fact that the different groups have converged (i.e. antagonism among the CO₂ emitters has decreased) as the contribution of energy intensity to between-group differences has decreased. This lower degree of polarisation in CO₂ distribution suggests a situation more conducive to the possibility of reaching EU-wide agreements on the mitigation of CO₂ emissions.     

Rule-based frameworks in historical perspective: Keynes’ and Friedman's monetary policies versus contemporary policy-rules

Abstract

This note suggests that Fazio's re-interpretation of Ferrara's discussion of distribution as a bilateral monopoly is incorrect. A more natural formalization of the work by Ferrara is proposed.     

Developing an alert system for local governments in financial crisis

This article presents a new model which will show whether a local authority is heading for financial trouble. The model is simple for national audit bodies to use and provides an early warning of financial tensions allowing corrective action to be taken before there is a crisis.