corruption in america abstract we use a data set of federal corruption convictions in the u s to investigate the causes and consequences of corruption more educated states and to a smaller degree richer states have less corruption this relationship holds even when we use historical factors like congregationalism in 1890 as an instrument for the level of schooling today the level of corruption is also correlated with the level of income inequality and racial fractionalization and uncorrelated with the size of government there is a weak negative relationship between corruption and economic development in a state these results echo the cross country findings and support the view that the correlation between development and good political outcomes occurs because education improves political institutions

applying ethics to insider trading insider trading has received a bad name in recent decades the popular press makes it sound like an evil practice where those who engage in it are totally devoid of ethical principles yet not all insider trading is unethical and some studies have concluded that certain kinds of insider trading are actually beneficial to the greater investment community some scholars in philosophy law and economics have disputed whether insider trading should be punished at all while others assert that it should be illegal in all cases this paper explores the nature of insider trading and analyzes the issues to determine the positive and negative aspects of insider trading and how policy should be changed the best hope would be for studies to be made that isolate the individuals or groups who are fraudulently harmed by insider trading if any such groups exist then clearly worded legislation could be passed to prevent any fraud from being committed against these individuals and groups while allowing non fraudulent transactions to be completed without fear of prosecution until it can be clearly determined that someone is fraudulently harmed by insider trading there should be no law or regulation restricting the practice since such restrictions violate individual rights and will likely have a negative market reaction

simple solutions to the initial conditions problem in dynamic nonlinear panel data models with unobserved heterogeneity i study a simple widely applicable approach to handling the initial conditions problem in dynamic nonlinear unobserved effects models rather than attempting to obtain the joint distribution of all outcomes of the endogenous variables i propose finding the distribution conditional on the initial value and the observed history of strictly exogenous explanatory variables the approach is flexible and results in simple estimation strategies for at least three leading dynamic nonlinear models probit tobit and poisson regression i treat the general problem of estimating average partial effects and show that simple estimators exist for important special cases copyright 2005 john wiley sons ltd

looking behind mortgage delinquencies abstract delinquency rates for mortgages originated before and after the financial crisis are examined using a novel and large panel obtained by merging data from tax records and credit registers first we estimate the selection into the mortgage market using an exogenous index of local credit supply as exclusion restriction second controlling for selection we estimate the impact of income shocks on the delinquency rate we find that since 2008 the selection process has led to the halving of the delinquency rate conditional on the creation of a new mortgage job losses nearly double the delinquency risk estimates uncorrected for selection are severely downward biased

what happens during recessions crunches and busts we provide a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 oecd countries over the period 1960 2007 in particular we analyse the implications of 122 recessions 113 28 credit contraction crunch episodes 114 28 episodes of house price declines busts 245 61 episodes of equity price declines busts and their various overlaps in these countries over the sample period our results indicate that the interactions between macroeconomic and financial variables can play a major role in determining the severity and duration of a recession specifically we find evidence that recessions associated with credit crunches and house price busts tend to be deeper and longer than other recessions stijn claessens m ayhan kose and marco e terrones

liquidity constrained markets versus debt constrained markets this paper compares two different models in a common environment the first model has liquidity constraints in that consumers save a single asset that they cannot sell short the second model has debt constraints in that consumers cannot borrow so much that they would want to default but is otherwise a standard complete markets model both models share the features that individuals are unable to completely insure against idiosyncratic shocks and that interest rates are lower than subjective discount rates in a stochastic environment the two models have quite different dynamic properties with the debt constrained model exhibiting simple stochastic steady states while the liquidity constrained model has greater persistence of shocks

personal bankruptcy and credit supply and demand this paper examines how personal bankruptcy and bankruptcy exemptions affect the supply and demand for credit while generous state level bankruptcy exemptions are probably viewed by most policy makers as benefiting less well off borrowers our results using data from the 1983 survey of consumer finances suggest that they increase the amount of credit held by high asset households and reduce the availability and amount of credit to low asset households conditioning on observable characteristics thus bankruptcy exemptions redistribute credit toward borrowers with high assets interest rates on automobile loans for low asset households also appear to be higher in high exemption states

ethical reasoning and the use of insider information in stock trading the cognitive developmental theory of ethics suggests that there is a positive relationship between ethical reasoning and ethical behavior in this study we trained a sample of accounting and finance students in performing competitive stock trading in our state of the art trading room the subjects then performed trading of stocks under two experimental conditions insider information and no insider information where significant performance based financial awards were at stake we also administered the defining issues test dit ethical behavior as the dependent variable was measured in a binary scale whether the subjects used insider information for trading of stocks or not ethical reasoning as measured by the dit p score indicated statistically significant effect on ethical behavior the results have important implications for recruitment and training of professionals engaged in the use of financial markets for securities trading

welfare implications of the bankruptcy reform act of 1999 abstract in recent years personal bankruptcy has become an important issue to consumers creditors and legislators alike over 40 billion dollars of unsecured debt were discharged in 1998 by 1 44 million households these losses have led legislators to propose a variety of changes in bankruptcy law the most important and recent of which is the bankruptcy reform act of 1999 ba99 i develop a dynamic stochastic general equilibrium model of personal bankruptcy to investigate the trade off between the consumption smoothing role of bankruptcy and the interest rate and deadweight costs it imposes i find that stringent means tests would reduce filing rates only slightly and would have only modest welfare consequences on the other hand the elimination of bankruptcy altogether is found to have substantial benefits this result is robust to income shock persistence and to stringency in the application of means tests

corruption soundness of the banking sector and economic growth a cross country study abstract this paper explores the impact of corruption on both the banking sector and economic growth we determine the impact using 76 macroeconomic data from various countries over the period 2002 2004 the results of various cross sectional regressions provide substantial evidence that corruption significantly aggravates the problems with bad loans in the banking sector in this study we also find some evidence of a new channel through which corruption lowers economic growth corruption distorts the allocation of bank funds from normal projects to bad projects which decreases the quality of private investments hence it decreases economic growth

does deposit insurance increase banking system stability an empirical investigation based on evidence of 61 countries in 1980 97 the authors find that explicit deposit insurance tends to be detrimental to bank stability the more so where bank interest rates are deregulated and the institutional environment is weak the adverse impact of deposit insurance on bank stability tends to be stronger the more extensive is the coverage offered to depositors and where the scheme is funded and run by the government rather than the private sector

state dependence serial correlation and heterogeneity in intertemporal labor force participation of married women a dynamic search framework is developed to analyze the intertemporal labor force participation behavior of married women using longitudinal data to allow for a rich dynamic structure the sensitivity to alternative distributional assumptions is evaluated using linear probability and probit models the dynamic probit models are estimated using maximum simulated likelihood msl estimation to overcome the computational difficulties inherent in maximum likelihood estimation of models with nontrivial error structures the results find that participation decisions are characterized by significant state dependence unobserved heterogeneity and negative serial correlation in the error component the hypothesis that fertility decisions are exogenous to women s participation decisions is rejected when dynamics are ignored however there is no evidence against this hypothesis in dynamic model specifications women s participation response is stronger to permanent than current nonlabor income reflecting unobserved taste factors

unsecured debt with public insurance from bad to worse abstract in u s data income interruptions the receipt of public insurance and the incidence of personal bankruptcy are all closely related the central contribution of this paper is to evaluate bankruptcy protection and public insurance in a unified setting where each program alters incentives in the other our analysis delivers two striking conclusions first we find that u s personal bankruptcy law is an important barrier that prevents the public insurance system from improving welfare second contrary to popular belief we find that increases in the generosity of public insurance will lead to more not less bankruptcy

risk in banking and capital regulation this paper investigates the role of bank capital regulation in risk control it is known that banks choose portfolios of higher risk because of inefficiently priced deposit insurance bank capital regulation is a way to redress this bias toward risk utilizing the mean variance model the following results are shown a the use of simple capital ratios in regulation is an ineffective means to bound the insolvency risk of banks b as a solution to problems of the capital ratio regulation the theoretically correct risk weights under the risk based capital plan are explicitly derived and c the theoretically correct risk weights are restrictions on asset composition which alters the optimal portfolio choice of banking firms the recent increase in bank failures especially after the 1980 and 1982 deregulatory acts has again ignited a controversy over the risk portfolio of the banking industry given the importance of this sector there has been increased scrutiny of the industry s motives for risk taking and possible regulatory changes to improve its stability these investigations have centered around two rather complementary areas the first of these is the role of deposit insurance and how its current pricing procedure encourages risk taking and justifies current bank regulations the works of buser chen and kane 4 kane 9 and benston et al 2 have made substantive contributions the authors demonstrates the way in which our current fixed rate insurance system rewards risk taking by the firm and insulates it through deposit insurance from the market discipline that needs to exist to ensure proper risk evaluation this realization has led these authors to propose a series of regulatory changes to encourage proper portfolio choice within the industry these include a shift to market value accounting risk based deposit insurance premiums and additional capital regulation the last of these serves as a method of coinsurance whereby higher capital levels require the bank to absorb greater losses in the event of failure and encourage additional prudence in management in essense it is one method of risk reduction that may offset the risk preference imposed on the industry due to the inappropriate insurance pricing because the amount of capital influences the probability of bank insolvency and thus the soundness of the entire banking system the regulators ceteris paribus prefer more capital to

courts and banks effects of judicial enforcement on credit markets the cost of enforcing contracts is a key determinant of market performance we document this point with reference to the credit market in a model of opportunistic debtors and inefficient courts according to the model improvements in judicial efficiency should reduce credit constraints and increase lending with an ambiguous effect on interest rates that depends on banking competition and on the type of judicial reform these predictions are supported by panel data on italian provinces in provinces with longer trials or large backlogs of pending trials credit is less widely available

an empirical analysis of personal bankruptcy and delinquency this article uses a new dataset of credit card accounts to analyze credit card delinquency personal bankruptcy and the stability of credit risk models we estimate duration models for default and assess the relative importance of different variables in predicting default we investigate how the propensity to default has changed over time disentangling the two leading explanations for the recent increase in default rates a deterioration in the risk composition of borrowers versus an increase in borrowers willingness to default due to declines in default costs even after controlling for risk composition and economic fundamentals the propensity to default significantly increased between 1995 and 1997 standard default models missed an important time varying default factor consistent with a decline in default costs debt issued by consumers is an understudied asset class there has been particularly little academic study of recent trends in default on this debt between 1994 and 1997 the number of personal bankruptcy filings in the united states rose by about 75 the 1 35 million filings in 1997 represented well over 1 of u s households delinquency rates on credit cards rose almost as sharply federal reserve bank of cleveland 1998 the resulting losses to lenders amounted to a sizable fraction of the interest payments they collect potentially raising the average cost of credit these trends in default both in bankruptcy and delinquency are especially surprising in light of the strong economy over the period they provide an unusually rich source of variation to test the stability of models that forecast personal default and of credit risk models more generally there are two leading explanations for these trends first the risk composition of borrowers might have worsened under the risk effect less

local ethics in a global world ethics fairness trust and freedom from corruption are parts of social capital and social capital matters in financial markets investors consider not only the information they receive but also their trust in the accuracy of the information and the fairness of the markets in which to trade deficiencies in ethics and fairness mark all countries but surveys of the perception among students and finance professionals of the fairness of insider trading in eight countries indicate that deficiencies are more pronounced in some countries than in others five factors are discussed that affect social capital culture globalization income education and law enforcement

an experiment testing the determinants of non compliance with insider trading laws recent stories of corporate insiders avoiding losses and in some cases generating enormous personal profits as their companies crumbled have led investors to question the integrity of american business and the fairness of the united states stock markets the sec tries to ensure the fairness of the stock markets by making and enforcing laws against unfair practices such as insider trading in the united states when insiders trade stock based on non public information they have broken the law and betrayed the trust that has been placed in them

the rise of risk based pricing of mortgage interest rates in italy abstract this paper assesses how much mortgage interest rates in italy are priced on credit risk as proxied by the probability of household mortgage delinquency estimated using the eu silc database owing to data availability we restrict the analysis of mortgage pricing to italian households consistent with the more widespread use of credit scoring estimates indicate that italian lenders have increasingly priced mortgage interest rates on household credit risk for mortgages granted between 2000 and 2007 we find that a 1 point increase in the probability of default is associated with a 21 basis point rise in mortgage interest rates lower than the 38 basis point premium edelberg 2006 estimated for the us at the end of the 1990s

the cultures of insider trading paul bond is a lawyer who overheard two other lawyers at his office discussing the proposed purchase of a company by one of their clients he proceeds to buy shares of this company would you rate bond s behavior completely fair acceptable unfair or very unfair i posed this vignette to samples of university students in china taiwan and the u s most students in the u s and taiwan samples rated bond s behavior unfair or very unfair while most students in the china rated bond s behavior completely fair or acceptable perceptions of fairness are part of the culture of a country and culture affects business practices i discuss culture perceptions of fairness and business practices in china taiwan and the u s

the household bankruptcy decision personal bankruptcy filings have risen from 0 3 percent of households per year in 1984 to around 1 35 percent in 1998 and 1999 transforming bankruptcy from a rare occurrence to a routine event lenders lost about 39 billion in 1998 due to personal bankruptcy filings but economists have little understanding of why households file for bankruptcy or why filings have increased so rapidly until very recently studying the household bankruptcy decision was very difficult because no household level data set existed that included information on bankruptcy filings in this paper we use new data from the panel study of income dynamics which includes information on bankruptcy filings to estimate a model of households bankruptcy decisions we find support for the strategic model of bankruptcy which predicts that households are more likely to file when their financial benefit from filing is higher our model predicts that an increase of 1 000 in households financial benefit from bankruptcy would result in a 7 percent increase in the number of bankruptcy filings our model also predicts that if the 1997 national bankruptcy review commission s proposed changes in bankruptcy exemption levels were implemented there would be a 16 percent increase in the number of bankruptcy filings each year but if the 100 000 cap on homestead exemptions recently passed by the u s senate were adopted our model predicts that there would be only a negligible effect on the number of filings we find little support for the nonstrategic model of bankruptcy which predicts that households file when adverse events occur which reduce their ability to repay finally controlling for state and time fixed effects our model shows that households are more likely to file for bankruptcy if they live in districts with higher aggregate filing rates

the existence and persistence of household financial hardship a bayesian multivariate dynamic logit framework we investigate the existence and persistence of financial hardship at the household level using data from the british household panel survey our modelling strategy makes three important contributions to the existing literature on household finances firstly we model nine different types of household financial problems within a joint framework allowing for correlation in the random effects across the nine equations secondly we develop a dynamic framework in order to model the persistence of financial problems over time by extending our multi equation framework to allow the presence or otherwise of different types of financial problems in the previous time period to influence the probability that the household currently experiences such problems our third contribution relates to the possibility that experiencing financial problems may be correlated with sample attrition we model missing observations in the panel in order to allow for such attrition our modelling framework allows us to identify any persistence in financial problems over time as well as any interdependence that may exist between different types of financial problems our findings reveal interesting variations in the determinants of experiencing different types of financial problems including demographic and regional differences our findings also highlight persistence in experiencing financial problems over time as well as the role that saving on a regular basis can play in mitigating current financial problems

household debt repayment behaviour what role do institutions play despite the lively policy debate on rising household debt arrears and personal bankruptcy filings there is relatively little empirical evidence on the determinants of households debt repayment behaviour or on the incidence of arrears even less is known about how arrears compare between countries although debt levels are known to vary widely using data from the european community household panel we first show that arrears are frequently associated with subsequent adverse consequences such as future unemployment or bad health second we find that arrears are often precipitated by an adverse shock to the household s income or health but that there are large differences between countries in how households react to these events finally we show that these differences can be partly explained by local financial and judicial institutions as captured by contract enforcement and information sharing indicators in other words we show that while adverse shocks are highly important the extent to which they affect repayment behaviour depends crucially on the penalty for defaulting this finding suggests that although repayment problems often arise from a genuine inability to repay some households seem to behave strategically burcu duygan bump and charles grant

technical progress inefficiency and productivity change in u s banking 1984 1993 studies often find that on average u s commercial banks are quite inefficient and the authors find that banks became more technically inefficient between 1984 and 1993 from a new decomposition of the malmquist productivity index into changes in pure technical and scale efficiency as well as both pure technical changes and changes in scale of technology they find that much of the inefficiency increase can be attributed to the general failure of banks to adopt technological improvements made by a few banks that advanced the efficient frontier small banks experienced especially large decreases in both efficiency and productivity

mortgage arrears regulation and institutions cross country evidence abstract using a newly constructed database for 26 countries over 2000 2014 we analyze cross country and within country differences in mortgage arrears we find that restrictive macro prudential policies in particular lower regulatory loan to value ratios are significantly associated with a lower share of mortgage arrears in total residential debt likewise better institutions are related with lower delinquency rates both directly and by enhancing the impact of macro prudential policies and the right to recourse we also find that the effect of macro prudential policies is conditioned by several mortgage market characteristics such as the maturity of loans interest rate fixity and tax deductibility of interest payments

deposit insurance and bank failures new evidence from the 1920s this paper examines the contribution of deposit insurance to bank failures during the 1920s using individual bank data from kansas where membership in the state insurance system was voluntary i find that the balance sheets of insured banks reflected greater risk taking and probit model estimates indicate that insured banks were more likely to fail than non insured banks insurance had an especially strong impact the closer a bank was to failure because regulation was comparatively strict in kansas the findings suggest that deposit insurance had an even greater impact in other states and in the recent u s experience

deposit insurance and risk taking behavior in the credit union industry abstract this paper examines the relationship between deposit insurance and risk taking behavior within the credit union industry time series tests employing industry average financial ratios for federal and state credit unions did not support the increased risk taking hypothesis although federal credit union capital declined immediately following the adoption of deposit insurance this was most likely the result of reduced capital requirements not deposit insurance liquidity and loan delinquency ratios had a negative time trend coefficient implying a decline in risk taking behavior during the post insurance period cross sectional test results employing iowa state chartered credit union data indicated that insured credit unions were better capitalized and more liquid than their uninsured counterparts overall there was no evidence that the adoption of deposit insurance increased the risk taking behavior of credit unions

capital regulation and bank risk taking a note abstract this paper examines theoretically the effects of more stringent capital regulation on bank asset portfolio risk the analysis shows that for a value maximizing bank incentives to increase asset risk decline as its capital increases thus as long as regulatory efforts to contain asset risk and size are not reduced more stringent capital regulation unambiguously reduces the expected liability of the deposit insurance system

redistributive taxation and personal bankruptcy in u s states abstract personal bankruptcy regulation and redistributive taxes and transfers vary considerably across u s states and over time our hypothesis is that both policies are imperfect substitutes in insuring consumption of risk averse agents in incomplete markets exploiting data variation over time for 18 u s states for the period 1980 2003 we find considerable support for this hypothesis redistributive taxation and bankruptcy exemptions are negatively correlated and both policies are associated with more equal consumption growth

politicians and banks political influences on government owned banks in emerging markets abstract government ownership of banks is very common in countries other than the united states this paper provides cross country bank level empirical evidence about political influences on these banks it shows that government owned banks increase their lending in election years relative to private banks this effect is robust to controlling for country specific macroeconomic and institutional factors as well as bank specific factors the increase in lending is about 11 of a government owned bank s total loan portfolio or about 0 5 of the median country s gdp per election per government owned bank

dynamic valuation of delinquent credit card accounts this paper introduces a dynamic model of the stochastic repayment behavior exhibited by delinquent credit card accounts based on this model we construct a dynamic collectability score dcs that estimates the account specific probability of collecting a given portion of the outstanding debt over any given time horizon the model integrates a variety of information sources including historical repayment data account specific and time varying macroeconomic covariates as well as scheduled account treatment actions two model identification methods are examined based on maximum likelihood estimation and the generalized method of moments the latter allows for an operational statistics approach combining model estimation and performance optimization by tailoring the estimation error to business relevant loss functions the dcs framework is applied to a large set of account level repayment data the improvements in classification and prediction performance compared to standard bank internal scoring meth