Alternative Forms of Mixing Banking with Commerce: Evidence from American History

Much of the discussion about banking and commerce in America has failed to make several crucial distinctions and has not accounted for many arrangements that have promoted the mixing of these activities. We investigate the history of banking and commerce in the United States, looking both at bank control of commercial firms and commercial firms' control of banks. We trace how these controls have changed with shifting definitions of "bank" and changing methods of "control." Despite the regulations prohibiting some arrangements that promote financial control, we find evidence of extensive linkages between banking and commerce in the United States. These linkages usually build on devices that are very close substitutes to the arrangements prohibited by law. Altogether, our findings question the often made claim that traditionally banking in the United States has been separated from commerce. Furthermore, given that research on Japan and Germany has shown that the mixing of banking and commerce matters for a variety of issues, our evidence also raises some questions on similar research in the United States which makes the simplifying assumption that these industries are separated.     

Bank Capital Regulation in Contemporary Banking Theory: A Review of the Literature

This paper reviews the theoretical literature on bank capital regulation and analyzes some of the approaches to redesigning the 1988 Basel Accord on capital standards. The paper starts with a review of the literature on the design of the financial system and the existence of banks. It proceeds with a presentation of the market failures that justify banking regulation and an analysis of the mechanisms that have been suggested to deal with these failures. The paper then reviews the theoretical literature on bank capital regulation. This is followed by a brief history of capital regulation since the 1988 Basel Capital Accord and a presentation of both the alternative approaches that have been put forward on setting capital standards and the Basel Committee's proposal for a new capital adequacy framework.     

Efficient markets and Bayes’ rule

Summary. A series of financial anomalies motivated the development of new theories that modify the rational expectations ideal. Two possibilities have been systematically explored. The literature on behavioral finance relaxes the assumption that agents form beliefs according to the laws of probability and assume, instead, that simpler heuristic rules are used. Another stream of the literature assumes that agents process information according to Bayes rule, but do not posses sufficient information to know the true data generating process. In this paper, Bayesian and Behavioral agents coexist and trade in a standard dynamic asset pricing model. A long-standing conjecture is demonstrated. It is shown that, under suitable assumptions, Bayesian agents drive Behavioral, non-Bayesian agents out of the market. Hence, asset prices are eventually determined under the Bayesian paradigm.Received: 3 June 2004, Revised: 17 September 2004, JEL Classification Numbers: D83.Preliminary versions have circulated under the titles Markets Favor Bayesian Models and Market Selection of Empirical Models under Limited Information. I thank Larry Blume, David Easley, Larry Epstein, Armando Gomes, Bruce Hansen, Lars Hansen, Richard Kihlstrom, Grace Koo, George Mailath, Werner Ploberger, Andrew Postlewaite and Shakeeb Khan for useful comments. I also thank participants at the NBER GE meetings, Evolutionary Finance conference in Zurich, Latin American Meetings of the Econometric Society, Stanford Institute for Theoretical Economics, the Instituto de Matematica Pura e Aplicada, the theory seminar at Brown, Chicago, Harvard-MIT, Minnesota, Penn and Wisconsin. I gratefully acknowledge the financial support from the National Science Foundation Grant SES 0109650.     

Learning by fund-raising

From experience, fund-raisers become more efficient solicitors. This paper offers a full characterization of the optimal solicitation strategy when there are learning economies. The characterization is recursive, and does not require equilibrium computations. Our main results are that (1) the fund-raiser may now solicit a “ net free-rider”—a donor whose contribution falls below the marginal solicitation cost; (2) the number of solicitations is non-monotonic in the learning rate; and (3) a solicitation technology with high overhead but low marginal costs is likely to be optimal if income distribution in the population is relatively homogenous. The complementary case with a decreasing returns to scale technology is also considered.     

Perceptions of poverty attributions in Europe: a multilevel mixture model approach

The perception of the causes of poverty has long been recognized as a very important factor in the broader study of this social phenomenon. This study covers 15 European Union countries and considers three types of poverty attributions: individualistic, societal, and fatalistic. The individualistic view perception believes the poor are responsible for their situation, the societal perspective blames society for poverty and the fatalistic view considers poverty to be the result of bad luck or fate. A multilevel mixture model with three clusters of countries and six clusters of individuals was identified. Despite the generalization of the social explanations of poverty at the individual or micro level, there are also groups that emphasize more individualistic explanations, blaming the poor for their condition. At the country or macro level, the most developed cluster believes in the individualistic and fatalistic causes of poverty, whereas the least developed clusters explain poverty based on the injustices of society. There is diversity in the way these countries perceive poverty.     

Financialization of Housing in Brazil: New Frontiers

The financialization of housing has been increasingly identified as an important driver of social and economic change in contemporary capitalism. Focusing on the Brazilian context, this article considers the extent to which recent changes in housing regulations, policies and markets confirm or challenge narratives about the financialization of housing in the international academic debate. I argue that while many of the trends stressed in the literature are apparent, more extreme processes of financialization within the Brazilian housing sector remain limited––not only because of institutional and regulatory constraints, path dependence or political resistance, but also because of fundamental structural conditions of Brazil's position as a peripheral economy. Three different but mutually reinforcing processes are scrutinized in order to evaluate the financialization of housing and its limits in Brazil: the re‐regulation of the real estate financial sector initiated in the 1990s; the changing funding patterns among real estate companies since the mid‐2000s; and the increasing commodification of housing induced by a large‐scale and heavily subsidized housing program launched in 2009.     

Trading Partners and Trading Volumes: Implementing the Helpman–Melitz–Rubinstein Model Empirically

Helpman, Melitz and Rubinstein [Quarterly Journal of Economics (2008) Vol. 123, pp. 441–487] (HMR) present a rich theoretical model to study the determinants of bilateral trade flows across countries. The model is then empirically implemented through a two‐stage estimation procedure. We argue that this estimation procedure is only valid under the strong distributional assumptions maintained in the article. Statistical tests using the HMR sample, however, clearly reject such assumptions. Moreover, we perform numerical experiments which show that the HMR two‐stage estimator is very sensitive to departures from the assumption of homoskedasticity. These findings cast doubts on any inference drawn from the empirical implementation of the HMR model.     

Accounting Standards Harmonization and Financial Integration

We empirically examine whether adopting a uniform set of accounting standards mitigates information frictions in financial markets and facilitates market integration. Using a difference‐in‐difference design, we find that after the mandatory adoption of IFRS local stock returns incorporate more global information and at a faster speed. The effect of IFRS adoption is stronger in countries where there are larger improvements in accounting comparability and for firms with a larger increase in foreign ownership. Overall, our results suggest that accounting standards harmonization facilitates financial market integration.