Deposit Insurance and Risk Management of the U.S. Banking System: What is the Loss Distribution Faced by the FDIC?

We examine the question of deposit insurance through the lens of risk management by constructing the loss distribution faced by the Federal Deposit Insurance Corporation (FDIC). We take a novel approach by arguing that the risk management problem faced by the FDIC is similar to that of a bank managing a loan portfolio, only in the FDIC’s case the risk arises from the potential for loss of the individual banks in its portfolio. We explicitly estimate the cumulative loss distribution of FDIC insured banks using two variations of the Merton model and find that reserves are sufficient to cover roughly 99.85% of the loss distribution, corresponding to about a BBB+ rating. However, under different stress scenarios (higher correlations, fat-tailed bank returns, increased loss severity) that level can be much lower: approximately 96% corresponding to about a B+ rating.JEL classification: G210, G280.Any views expressed represent those of the author only and not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System.     

Consider the non-adopter: Developing a prediction model for the adoption of household-level broadband access

We explore the decision process for the household-level adoption of broadband Internet access. Our aim, of determining the barriers to household-level broadband adoption and how to best overcome those barriers, guides our analysis in an effort to better inform broadband policy development and implementation. We introduce and rely on data collected from 3101 New Jersey households under the National Telecommunications and Information Administration's nationwide Broadband Technology Opportunity Program. Following MATH, the Model of Technology Adoption in Households, extended with a moderating control variable, we model the conditions under which a household is more or less likely to adopt household-level broadband Internet access. We specify an original two-step model that first estimates from demographic determinants a linear latent variable of the responding household's propensity to not adopt high-speed broadband Internet access, and then regresses that propensity variable on behavioral and attitudinal measures about broadband and computer use and familiarity. Analyzing those outcomes generates three empirical findings that help inform the efficient implementation of policies to establish universal broadband access: (1) demographically, household-level broadband adoption in New Jersey is colorblind: race and ethnicity, in and of themselves, do not predict household-level broadband adoption; (2) behaviorally, the strongest facilitator for household-level broadband adoption is computer use by the household decision-maker; and (3) structurally, the strongest barrier to such adoption is lack of resources. Decomposing and better understanding the phenomenon of non-adoption will help to inform planning efforts to maximize household-level broadband adoption.     

Should Stochastic Volatility Matter to the Cost-Constrained Investor?

Significant strides have been made in the development of continuous-time portfolio optimization models since Merton (1969) . Two independent advances have been the incorporation of transaction costs and time-varying volatility into the investor's optimization problem. Transaction costs generally inhibit investors from trading too often. Time-varying volatility, on the other hand, encourages trading activity, as it can result in an evolving optimal allocation of resources. We examine the two-asset portfolio optimization problem when both elements are present. We show that a transaction cost framework can be extended to include a stochastic volatility process. We then specify a transaction cost model with stochastic volatility and show that when the risk premium is linear in variance, the optimal strategy for the investor is independent of the level of volatility in the risky asset. We call this the Variance Invariance Principle.     

The regionalization of indian politics and its implications for economic reform

Is political decentralization an impetus for economic liberalism, or are state and local governments impediments to a rigorous reform process? This article describes India's federal system, the growth of regional parties and governments, the changing balance of power between India's state and central governments, and the deterioration of state administrations, then assesses the economic reform and human resource policies of the states. The factors which slow the pace of reforms (politically unstable governments, fiscal populism, organized local interests, patronage and rents for party and government officials) and those that push for reforms (fiscal deficits, the need for investments in infrastructures, and inter-state competition for private investment) are analyzed.     

Advanced practice nurse outcomes 1990-2008: a systematic review

Advanced practice registered nurses have assumed an increasing role as providers in the health care system, particularly for underserved populations. The aim of this systematic review was to answer the following question: Compared to other providers (physicians or teams without APRNs) are APRN patient outcomes of care similar? This systematic review of published literature between 1990 and 2008 on care provided by APRNs indicates patient outcomes of care provided by nurse practitioners and certified nurse midwives in collaboration with physicians are similar to and in some ways better than care provided by physicians alone for the populations and in the settings included. Use of clinical nurse specialists in acute care settings can reduce length of stay and cost of care for hospitalized patients. These results extend what is known about APRN outcomes from previous reviews by assessing all types of APRNs over a span of 18 years, using a systematic process with intentionally broad inclusion of outcomes, patient populations, and settings. The results indicate APRNs provide effective and high-quality patient care, have an important role in improving the quality of patient care in the United States, and could help to address concerns about whether care provided by APRNs can safely augment the physician supply to support reform efforts aimed at expanding access to care.     

Who bribes? Evidence from the United Nations' oil-for-food program

How do managers react in an environment where bribery is likely to bring high rewards, but also presents high risks? We examine the supply side (firms' illicit payments) of bribery in a global setting, using the United Nations' (UN) Oil-for-Food Program, part of UN sanctions on Iraq. Some companies helped Iraq circumvent UN sanctions through bribe payments in the form of illicit surcharges. Our transaction-level analysis of factors affecting bribe payments draws on the economic theory of crime, agency theory, and home country institutions. Results suggest that firms pay larger bribes when there are stronger financial and managerial incentives, but pay less when their home countries have implemented the OECD Anti-Bribery Convention. We find little relationship between a widely used country-level corruption perception index and firms' actual bribery. Copyright © 2012 John Wiley & Sons, Ltd.     

Exploring Formula Allocation for the European Union

This paper explores the efficiency impacts of two methods of consolidated base taxation with formula allocation under consideration in the European Union. The first method, common (consolidated) base taxation (CCBT), would allow companies to choose a single tax base for their EU-wide operations. This tax base would be common throughout the participating member states. The second method, Home State taxation (HST), would also allow companies to choose a single tax base for their EU-wide operations. But, unlike with CCBT, the tax base would be defined according to the rules in the company's residence, or home, state. Thus, several different tax bases would exist within the EU. Both methods would use a common formula to distribute profits across countries. This paper finds that since countries continue to set corporate income tax rates, economic inefficiencies continue to exist under both methods. However, under HST, since the tax base differs according to residence, additional inefficiencies may arise depending on whether countries reduced their tax rates to combat the incentive for companies to relocate to locations with narrow tax bases.