Can alert models for fraud protect the elderly clients of a financial institution?

ABSTRACT

Using account-level transaction data at a major financial institution, we predict the incidence of suspicious activity that can be related to the external financial fraud of its elderly clients. The data consists of over 5 million accounts of clients aged 70 years and older, and over 250 million transactions extending from January 2015 to August 2016. Our main focus is to improve the detection of alerts within a proprietorial transaction monitoring system. Using logistic regression, random forest and support vector machine learning techniques, together with corrections for imbalanced alert samples, we provide a new alert model for the protection of elderly clients at a financial institution, with out-of-sample predictive accuracy. Our findings show the relative influence of client traits and account activity in our select external fraud alert models.     

Institutional determinants of capital structure adjustment speeds

Many authors relate a firm's performance to legal and political features and the regulatory environment in which it operates. This article compares firms' capital structure adjustments across countries and investigates whether institutional differences help explain the variance in estimated adjustment speeds. We find that legal and financial traditions significantly correlate with firm adjustment speeds. More narrowly, institutional features also relate to adjustment speeds, consistent with the hypothesis that better institutions lower the transaction costs associated with adjusting a firm's leverage. Such associations between institutional arrangements and leverage adjustment speeds are consistent with the dynamic trade-off theory of capital structure choice.     

Cash flows and leverage adjustments

Recent research has emphasized the impact of transaction costs on firm leverage adjustments. We recognize that cashflow realizations can provide opportunities to adjust leverage at relatively low marginal cost. We find that a firm's cashflow features affect not only the leverage target, but also the speed of adjustment toward that target. Heterogeneity in adjustment speeds is driven by an economically meaningful concept: adjustment costs. Accounting for this fact produces adjustment speeds that are significantly faster than previously estimated in the literature. We also analyze how both financial constraints and market timing variables affect adjustments toward a leverage target.     

Modernizing Financial Regulation: The Relation Between Interbank Transactions and Supervisory Reform

Modernized financial firms are larger than traditional institutions, and they provide a broader range of services. Although the individual regulatory issues raised by modernization are not new, the pace and scope of these market changes may imply a qualitative change in the ability of governments to guarantee financial system stability. Private market discipline is more flexible, and the value of flexibility seems to have risen. In order to elicit private monitoring, however, governments must credibly eschew too-big-to-fail policies. Toward this end, national regulators should encourage ongoing efforts to implement secure interbank settlement systems.     

Designing randomized response surveys to support honest answers to stigmatizing questions

Review of Economic Design - Randomized response survey methods use noise to mask respondents’ answers to stigmatizing questions in an attempt to elicit honest responses. Respondents weigh the...     

Is the “smoke-filled room” necessary? An experimental study of the effect of communication networks on collusion

We investigate how well firms can collude with partial communication in relation to full communication. We find that firms vary their communication strategies with network structures. In the networks that have either an isolated firm or full communication, more players send “pure promises” suggesting everyone select the collusive actions unconditionally. In the network with leadership, more players send a “promise and threat” which includes a reward for collusion and a punishment for deviating. Because of the inability to communicate in the network with the isolated firm and the high frequency of deviation and punishment in the network with leadership, the full communication network achieves significantly higher payoff than partial communication.