assessing the fdic s premium and examination policies using soviet put options abstract the fdic s total liability for insuring a bank s deposits during a fixed period diminishes as the frequency of examinations increases since a marginally solvent bank can be closed while losses are small the paper develops a technique for pricing the insurance liability over a fixed period during which there are multiple examinations under current policy most banks are examined annually and reviewed every six months at which time the fees for insurance may be adjusted since the current schedule of fees allows only a narrow range and a few discrete levels the fdic typically retains some positive or negative residual liability in each six month period and for the entire year we show how to estimate this net liability the calculations of total and net liability are illustrated for a sample of large banks

dynamics of material productivity and socioeconomic factors based on auto regressive distributed lag model in china material productivity mp measured as economic output such as gross domestic product gdp per corresponding material input is gained significant interest of becoming a widespread environmental sustainability indicator the study of mp s dynamics is very important for policy making on how to improve mp this paper applies the auto regressive distributed lag ardl model to investigate the dynamic impacts of energy intensity for secondary industry sei tertiary industry value added per gdp tva trade openness to and domestic extraction per capita dec on mp in the case of china during the period from 1980 to 2010 the validated and robust results of the model confirm the existence of cointegration among the variables both in the long and short run the impacts of selected socioeconomic factors can be summarized as follows 1 in the long run an sei decrease driven by technology improvement is found to be the main driver of mp and a 1 decrease in sei results in a 0 432 increase in mp 2 the magnitude of the impact of tva on mp is higher over the short run than over the long run 3 to can reluctantly promote mp both in the long and short run 4 dec exhibits fundamentally different behaviors in the long and short run dec is not a strongly significant factor for mp and the magnitude of the impact is very weak in the long run however it has the greatest negative impact on mp in the short run as a 1 increase in dec results in a 0 519 decrease in mp which demonstrates that the marginal revenue of resource input has already dramatically declined these insights from the study could be considerably helpful for sustainable resource management and material productivity enhancement

alternative forms of deposit insurance pricing and bank incentive issues abstract this paper derives formulas for a deposit insuring agency s liability and hence a fair value deposit insurance premium and the equilibrium value of bank equity considering a wide variety of factors affecting individual bank risk both fixed rate and variable rate risk sensitive insurance systems are analyzed consideration is made as to whether the deposit insuring agency makes direct payments to depositors or arranges mergers following bank closings the effect of these various policy choices on banks incentive for risk taking is also analyzed

assessing regional eco efficiency from the perspective of resource environmental and economic performance in china a bootstrapping approach in global data envelopment analysis abstract eco efficiency has been receiving increasing attention across the world this paper proposes an extended data envelopment analysis model which combines global benchmark technology directional distance function and a bootstrapping approach to investigate the dynamic trends of regional eco efficiency in china from 2003 to 2014 moreover a developed slacks based measure is utilized to decompose the performance fluctuations into resource environmental and economic efficiency then the key factors responsible for the changes in eco efficiency are explored using the global malmquist luenberger index the empirical results demonstrate an upward trend of eco efficiency in china during the study period this trend was high in eastern and northern areas but low in northwestern areas however it should be noted that some eco efficient regions still consume much land water and energy and emit much environmental pollutants in absolute terms the whole of china performs well on the economic front while resource and environmental performances are not encouraging particularly on environmental efficiency the eastern and northern regions have experienced the greatest advances in both resource and environmental efficiency while the undeveloped areas have not shown much progress which further widens the gaps between developed areas and undeveloped areas the decomposition of productivity growth indicates that technical progress is the decisive factor in promoting china s eco efficiency while decreasing management level is the major obstacle hampering the improvement in eco efficiency

optimal bank reorganization and the fair pricing of deposit guarantees abstract when should regulators close a financially ailing bank fdic practice in the us has moved in the direction of early closure in contrast banking regulators in japan continue to follow a more patient approach this paper analyses a series of models in which closure rules and bailout policies arise endogenously through the interaction of i regulators attempts to minimize discounted expected bankruptcy costs and ii equity holders incentives to recapitalise banks we characterize subsidy policies for distressed banks that implement socially optimal closure rules at minimum financial cost to regulators and which reduce moral hazard

energy overview for globalized world economy source supply chain and sink abstract energy use of the globalized world economy is comprehensively overviewed by means of a systems input output analysis based on statistics of 2010 emphases are put on the sources of primary energy exploitation inter regional trade imbalance of energy use via global supply chains and sinks of energy use in final demand the largest final user turns out to be the united states compared with china as the leading energy exploiter the global trade volume of energy use is shown in magnitude up to about 90 of the global primary energy exploited the united states is recognized as the world s biggest energy use importer in contrast to russia as the biggest exporter approximately one third of global primary energy exploited is shown to be embodied in inter regional net trade japan and russia are respectively illustrated to be the world s leading net importer and leading net exporter of energy use for china as the leading energy exploiter about 30 of its exploited energy is for foreign regions final use and 70 for its own final use for the european union as the largest sink region nearly 80 of the energy required in its final use is from foreign regions led by russia as reflected in the results the conventional perspective based only on the direct energy consumption by region inevitably leads to inter regional energy grabbing and carbon leakage which raises a serious concern of regional decrease at the expense of global increase in current context of energy shortage and climate change this global energy overview can provide essential strategic implications at the international national and regional scales for sustainable energy policy making

insuring banks against liquidity shocks the role of deposit insurance and lending of last resort it has long been recognized that banks simultaneous provision of monitoring and liquidity services is advantageous but leaves them susceptible to liquidity shocks that may culminate in a system failure because a system failure is costly this provides a rationale for adopting arrangements including a lender of last resort and deposit insurance di to insure banks against liquidity shocks these arrangements have proven themselves very successful but they have also been the source of problems researchers have identified some of the main sources of these problems and have suggested ways to improve the design of these arrangements but there are still many issues that remain unaddressed this paper reviews the literature on the two arrangements that most countries have adopted to insure banks against liquidity shocks a lender of last resort and di and compares the design of these arrangements across countries the paper ends with a brief summary of the key lessons learned about the design of these arrangements and the issues related to them that remain unaddressed copyright blackwell publishers ltd 2006

comparing stochastic price regimes abstract marshallian consumer s surplus can often be defended as a useful approximation to hicksian compensating variation under price uncertainty however expected compensating variation is not a generally valid welfare measure and expected consumer s surplus cannot be justified as an approximation to a rigorous construct

material use and material efficiency in latin america and the caribbean different world regions have followed very different trajectories for natural resources use over the recent decades latin america has pursued a development path based largely on exports of primary resources adopting this path has characteristic environmental and social impacts in this paper we provide the first broad based estimate of material use and material efficiency for the region beginning in 1970 and extending to the onset of the global financial crisis in 2008 the results show a region with rapidly growing primary materials consumption which is simultaneously becoming less efficient at converting those resources into national income using an ipat framework we found that population growth and rising per capita incomes made comparable contributions to growing material use while technological change as reflected in material intensity did not moderate consumption increasing materials intensity observed for the region as a whole is also observed for most individual countries this contrasts with some other world regions and implies that many countries in latin america and the caribbean will confront higher environmental pressures than expected when expanding their extractive industries to take advantage of new demand from other world regions while simultaneously supplying the requirements for their own domestic industrial transformations and urbanization

the unequal exchange of dutch cheese and kenyan roses introducing and testing an lca based methodology for estimating ecologically unequal exchange the theory of ecologically unequal exchange eue posits that international trade is structurally organized in a manner that allows a net transfer of resources from peripheral developing to core industrialized countries the consequence it is argued is under development in the periphery and augmented productive capacity in the core eue thus challenges the neoliberal free market argument that exchange at market prices is symmetric and fair an lca based methodology for estimating eue that holds constant the variable market price is introduced and tested on contemporary trade of dutch cheese and kenyan coffee and roses specifically the exchange of embodied land water energy global warming potential and labor is assessed the results confirm the theory s hypothesis at a fixed market price more embodied kenyan resources are exchanged for less dutch resources however kenyan roses give different results from coffee eue between countries can only be conclusively determined by considering the total biophysical trade balance but by calculating quantities of embodied resources per unit of exchange value it is possible to detect unequal exchange even at the level of individual commodities while integration of biophysical metrics alongside monetary valuation is recommended ultimately rethinking the structure policies and politics of international trade is necessary

long term changes in social metabolism and land use in czechoslovakia 1830 2000 an energy transition under changing political regimes abstract industrialisation goes along with sweeping changes in society s interrelations with its environment the transition from an agrarian to an industrial society leads to fundamentally new patterns in social metabolism a process which has been described as socio metabolic transition this paper investigates this transition for the case of the current czech and slovak republics and presents a dataset on the development of key variables related to social metabolism during the last 170 years the dataset includes time series data on the extraction of biomass and fossil fuels energy consumption and land use combining data on bohemia and moravia 1830 1915 with data on czechoslovakia 1918 1992 and the czech and slovak republics 1993 2002 the study covers a period of consecutive political and institutional changes it includes the feudal regime of the late period of the habsburg empire and its disintegration with wwi the short period of the czechoslovak republic in the interwar period the era of a planned economy under a communist regime the collapse of this regime and the subsequent turn towards a market economy and european integration in the 1990s the period was characterized by economic and physical growth it saw a doubling of population and a growth in gdp by a factor 20 domestic energy consumption dec increased by a factor 10 and the share of biomass in dec declined from more than 98 to less than 20 all in all the observed changes closely resemble the characteristic path of the socio metabolic transition as observed in other western european economies major political and economic changes did not result in fundamental alterations of the socio metabolic transition until the mid 20th century the communist era 1945 1989 was characterized by rapid physical growth and changes in the energy and land use system very similar to those of other western european economies in the same period however leading to dec values substantially higher than those of other european countries at around 300 gj cap in the mid 1980s the disturbances caused by the velvet revolution resulted in short term turbulences in social metabolism and structural adaptations and around the year 2000 the czech and slovak republics show biophysical features very similar to those of other western european countries

global overview for energy use of the world economy household consumption based accounting based on the world input output database wiod abstract globalization has integrated nations into a world economy based on the world input output database wiod this paper explored the energy use of the world economy under a household consumption based mrio multi region input output accounting scheme pertaining to normative economics the household consumption based mrio accounting scheme corresponds to the value judgement of household consumption being the ultimate driver of the economy which complements existing accounting methods based on different viewpoints the energy use associated with the internationally traded products is calculated to be around one fifth of the global total energy consumption for china as the largest exporter and also the biggest deficit economy in terms of energy use its trade imbalance is nearly the summation of that of the united states the united kingdom japan and germany energy self sufficiency rates by supply and by demand are respectively proposed while the united states economy as the largest importer maintains the majority of the energy welfare denoted by the onsite energy use at home china exports large quantities of energy use abroad for economies like germany south korea and taiwan they could be regarded as hubs that export a considerable amount of energy use abroad and absorb massive energy use from outside simultaneously for sustainable use of energy resources economies are suggested to carefully identify their roles in the global trading network of energy use

the impact of contingent liability on commercial bank risk taking abstract from 1863 1935 regulators imposed contingent liability on bank shareholders to discourage risk taking using data from 1900 to 1915 i find that banks subject to stricter liability rules have lower equity and asset volatility hold a lower proportion of risky assets and are less likely to increase their investment in risky assets when their net worth declines consistent with the hypothesis that stricter liability discourages commercial bank risk taking these findings provide lessons for current bank regulatory policy and show that the shape of the residual claimant s payoff function has a significant impact on managerial incentives and firm performance

errors in the numerical assessment of the benefits of price stabilization this paper presents a simple computational procedure for determining a consumer s willingness to pay to have a price stabilization policy implemented numerical simulations are then provided which demonstrate that the commonly used expected surplus measures whether hicksian or marshallian can in fact seriously misstate the true benefits of price stabilization these simulations also illustrate the extent to which the results may be dependent upon the assumptions made implicitly or explicitly regarding the consumer s attitudes toward risk thereby underscoring the need to conduct sensitivity analyses to determine the robustness of cost benefit assessments with respect to these assumptions

risk shifting incentives of depository institutions a new perspective on federal deposit insurance reform abstract we characterize the risk shifting incentives of a depository institution as arising fundamentally from the existence of limited liability and the associated convex payoff to equity holders this risk incentive feature is unchanged by deposits being insured and hence excessive risk taking by depository institutions is not solely attributable to the flat rate insurance premium consequently the incentive problem cannot be resolved through a risk based insurance premium contrary to the prevailing view we propose a solution that eliminates risk shifting through an optimal tax structure and specify a corresponding insurance premium that is revenue neutral from the social planner s regulator s standpoint the solution is derived in the context of a social objective function that trades off the benefits of liquidity services by banks and the unique informational role of bank loans with the costs of investment distortions engendered by risk shifting

uncovering resource losses and gains in china s foreign trade abstract natural resource storages and flows play an important role in economic and social processes in this paper we explore the trade of primary commodities between china and its main trade partners during the years 2000 and 2008 emergy accounting is used to assess the environmental support associated with the resources exchanged mass emergy and financial capital export to import ratios confirm that economy level trade advantages should not just rely on capital flow a holistic evaluation of the trade process including resource environmental value should be performed to identify trade balance and stability results show that while china s imports monetary value is much larger than exports monetary value china receives more emergy environmental support in trade than it gives benefiting from the ability of primary resources to drive its economy developed economies characterized by a low emergy to money ratio gain more from trade of primary commodities with china developing and underdeveloped economies with higher emergy to money ratio lose in the environmental support balance to china indicating the existence of a potentially unsustainable trade imbalance

bank risk dynamics and distance to default we adapt structural models of default risk to take into account the special nature of bank assets the usual assumption of log normally distributed asset values is not appropriate for banks typical bank assets are risky debt claims which implies that they embed a short put option on the borrowers assets leading to a concave payoff this has important consequences for banks risk dynamics and distance to default estimation due to the payoff non linearity bank asset volatility rises following negative shocks to borrower asset values as a result standard structural models in which the asset volatility is assumed to be constant can severely understate banks default risk in good times when asset values are high bank equity payoffs resemble a mezzanine claim rather than a call option bank equity return volatility is therefore much more sensitive to big negative shocks to asset values than in standard structural models

capital standard forbearance and deposit insurance pricing under garch abstract we propose a multiperiod deposit insurance pricing model that simultaneously incorporates the capital standard and the possibility of forbearance the model employs the recently developed garch option pricing technique in determining the deposit insurance value our model offers two distinctive advantages first it explicitly considers the implications of the strict enforcement on capital standard as stipulated in fdic improvement act of 1991 second the use of the garch model allows us to capture many robust features exhibited by financial asset returns by the garch option pricing theory the value of a contingent claim is a function of the asset risk premium this unique feature is found to be prominent in determining the bank s deposit insurance value we also examine the effects of capital forbearance and moral hazard behavior in this multiperiod deposit insurance setting

considerations of cost trade offs in insurance solvency surveillance policy abstract we propose a process for identifying potentially insolvent insurers on a cost effective basis a loss cost function is developed such that the effectiveness of monitoring is maximized relative to a cost constraint the loss cost function is supported by a model that provides a rank ordering of financial institutions according to their probability of insolvency when tested against a full sample of property liability insurance companies the procedure provides information critical to maximizing the effectiveness of regulatory resources available for solvency surveillance and performs well as a predictor of insolvency likewise the rank ordering of insurers overcomes an estimation problem critical to establishing risk adjusted guaranty assessments

material implication of chile s economic growth combining material flow accounting mfa and structural decomposition analysis sda abstract over the last three decades the economic integration of the chilean economy into global markets has been taking place at a rapid pace for example in 1986 exports represented 29 of gdp while in 1996 they had increased to 38 of gdp this period of time was characterized by strong economic growth with an average annual growth rate of about 10 from a physical perspective material requirements more than doubled from 220 to 500 million tons of direct material inputs dmi during the same decade the rate of material growth requirements was around 13 per year the main objective of this study is to explain the changes in dmi by using a structural decomposition analysis sda the changes in material flow accounting mfa were broken down into the effects caused by changes in resource use per unit of output material intensity effect changes between and within sectors structural change effect changes in the composition of final demand mix effect changes due to shifting shares of domestic final demand and export categories category effect and finally changes in the overall level of economic activities level effects the results as a percentage of the total level of dmi used in 1986 indicate that economic growth was the major source of material changes 109 the material intensity and category effects explained 31 and 14 of the increase respectively the increase in the material intensity is mainly due to a declining quality of ores in copper production however these components were partly compensated by the structure 14 and mix 13 effects therefore for a southern american country such as chile the main causes of these changes in material consumption have been a combination of the nature of economic growth along with an increase in export production and material intensity of production

non cooperative institutions for sustainable common pool resource management application to groundwater as demands for limited natural resources increase developing management institutions that ensure the sustainability of such resources is essential many natural resources are common pool resources cprs managed under different non cooperative cooperative and externally imposed management frameworks while early studies of non cooperative cpr management suggest inevitable tragedy of the commons here we discuss how users can avoid tragic outcomes by changing their decision making rationales and exploitation strategies even in a non cooperative environment this paper introduces and compares various types of non cooperative institutions that are available to manage cprs these management institutions are then applied using a numerical groundwater exploitation example to determine how different planning variables are affected by the choice of management institution results indicate that cpr users can improve their gains by considering the externalities and developing long term exploitation plans as opposed to short term plans with no consideration of externalities that result in rapid exhaustion of the resource and lead to the so called tragedy of the commons

the high price of dematerialization a dynamic panel data analysis of material use and economic recession abstract dematerialization at the national level occurs almost exclusively during periods of economic recession or low growth while recession is not a sustainable strategy to curb environmental impact such periods may offer important insights on the possibilities of reducing material use economic recession research has focused on the interactions between macroeconomic and financial variables with little systematic research dedicated to uncovering how resource use develops during periods of recession using a dynamic panel model we investigate whether and to what extent material use in a sample of 150 economies between 1970 and 2010 was affected by recession and low growth recession occurred most frequently and in more than two thirds of all countries during the 1980s and the 1990s in the 2000s more than half of the recessions occurred during the financial crisis of 2008 periods of recession were significantly and negatively correlated with material use they tended to coincide with dematerialization material use decreased in recession years but the significant correlations with growth in material use became weaker as growth rates increased construction minerals and metals used to build stocks of manufactured capital reacted more strongly to economic fluctuations than the throughput dominated flows of biomass and fossil fuels we conclude that the systematic link between recession and dematerialization can become policy relevant if the mechanisms causing reductions in material use during these periods are identified

growth in global materials use gdp and population during the 20th century the growing industrial metabolism is a major driver of global environmental change we present an assessment of the global use of materials since the beginning of the 20th century based on the conceptual and methodological principles of material flow accounting mfa on the grounds of published statistical data data compilations and estimation procedures for material flows not covered by international statistical sources we compiled a quantitative estimate of annual global extraction of biomass fossil energy carriers metal ores industrial minerals and construction minerals for the period 1900 to 2005 this period covers important phases of global industrialisation and economic growth the paper analyses the observed changes in the overall size and composition of global material flows in relation to the global economy population growth and primary energy consumption we show that during the last century global materials use increased 8 fold humanity currently uses almost 60 billion tons gt of materials per year in particular the period after wwii was characterized by rapid physical growth driven by both population and economic growth within this period there was a shift from the dominance of renewable biomass towards mineral materials materials use increased at a slower pace than the global economy but faster than world population as a consequence material intensity i e the amount of materials required per unit of gdp declined while materials use per capita doubled from 4 6 to 10 3 t cap yr the main material groups show different trajectories while biomass use hardly keeps up with population growth the mineral fractions grow at a rapid pace we show that increases in material productivity are mostly due to the slow growth of biomass use while they are much less pronounced for the mineral fractions so far there is no evidence that growth of global materials use is slowing down or might eventually decline and our results indicate that an increase in material productivity is a general feature of economic development

trade and the environment from a southern perspective the relationship between free trade and the environment is one of the main issues of contention between environmental and ecological economics environmental economics assumes a positive relationship between free trade economic growth and environmental policies environmental externalities may cause important damage however trade is not to be blamed for this instead the fault lies with policy inadequacies at the national level on the other hand some ecological economists criticise the assumptions of environmental economics especially the immobility of production factors and the positive correlation between income and environmental quality they plead for measures to prevent deterioration of northern environmental standards in a race to the bottom due to ecological dumping from the south in this paper we argue that neither environmental economics nor northern ecological economics take into account the structural conditions determining the international trade system based on some new empirical evidence on material flows we stress the notion of environmental cost shifting if physical and political ecology perspectives are adopted a southern approach to the trade and environment issue may arise 2001 elsevier science b v all rights reserved

expected consumer s surplus and the welfare effects of price stabilization suppose a consumer faces a price which is uncertain ex ante a question which often arises is whether the consumer would benefit from a stabilization policy under which the price would then be fixed and known with certainty many authors have addressed this question by calculating the expected compensating variation of the price change others have used expected marshallian consumer s surplus often with the explanation that it is a good approximation to expected compensating variation 2 an important unresolved issue however is whether expected compensating variation does in fact provide a valid ranking of stochastic prices against stabilized prices i e a ranking in agreement with that given by expected utility in section 2 we demonstrate that expected compensating variation is not in general a valid utility indicator in essence while utility comparisons under uncertainty require the use of the cardinal properties of von neumannmorgenstern utility functions the expected surplus measures depend only on ordinal preference rankings expected compensating variation then is completely insensitive to and cannot reflect the precise factor of interest in suchstudies the consumer s attitudes toward risk we then derive a set of restrictions on the utility function which are necessary in order for expected compensating variation to be a valid measure we see that price stabilization policies can only be evaluated with compensating variation if consumer preferences are assumed to satisfy quite stringent requirements this is in constrast to the familiar certainty case in which compensating variation always provides correct rankings

the valuation of fdic deposit insurance using option pricing estimates when congress set the premium rate for fdic deposit insurance in the banking act of 1935 which authorized a permanent federal insurance system neither experience nor theory could offer much guidance regarding an appropriate fee structure although rates have since been periodically revised the fdic has yet to attempt to set the insurance rate at a ifair level that is a level equal to administrative costs plus the ex ante value of the insurance such a premium is the rate that would be charged by competitive private insurers however7 the garn st germain act of 1982 directed the fdic to consider the feasibility of a risk based premium structure in response the fdic has suggested a trial system in which each insured bank will be placed in one of three risk classes based on credit and interest rate risk relative to capital and a premium rate will be assigned to each group those rates will be determined in part by the loss experience of the entire banking system fdic 1983 another approach to the determination of the appropriate insurance premium has been offered by merton 1977 who suggested using the analogous relationship between deposit guarantees and put options to value fdic insurance in this paper we follow merton s suggestion and calculate bank specific estimates of the proper premium for deposit insurance for the banks in our sample we find that fdic rates greatly exceed estimates of the fair value of the insurance derived from the blackscholes 1972 option pricing model

the material basis of the global economy worldwide patterns of natural resource extraction and their implications for sustainable resource use policies abstract material flow accounting and analysis mfa has been established as an influential framework for quantifying the use of natural resources by modern societies so far however no reference data for overall scale and trends of global extraction of natural resources and their distribution between different world regions has been available this paper presents the first comprehensive quantification of the material basis of the global economy i e used domestic extraction in a time series from 1980 to 2002 we analyse time trends for major material groups fossil fuels metals industrial and construction minerals and biomass disaggregated into seven world regions this allows for a an illustration of the global economy s physical growth driven by worldwide processes of economic integration over the past decades and b an indication of the worldwide distribution of environmental pressures associated with material extraction the results show that annual resource consumption of the world economy increased by about one third between 1980 and 2002 this indicates that scale effects due to economic growth more than compensated for other effects such as the relative increase of the service sectors contribution to gdp structural effect and the use of new production technologies with higher material and energy efficiency technology effect the observed growth of natural resource extraction is unevenly distributed over the main material categories with metals showing the highest growth rate the regional analysis shows the increasing importance of asia and latin america in global resource extraction on the global level material intensity i e resource extraction per unit of gdp decreased by about 25 indicating relative decoupling of resource extraction from economic growth the paper concludes with policy recommendations for a more sustainable use of natural resources

the roles of corporate governance in bank failures during the recent financial crisis abstract this paper analyzes the roles of corporate governance in bank defaults during the recent financial crisis of 2007 2010 using a data sample of 249 default and 4 021 no default us commercial banks we investigate the impact of bank ownership and management structures on the probability of default the results show that defaults are strongly influenced by a bank s ownership structure high shareholdings of outside directors and chief officers managers with a chief officer position such as the ceo cfo etc imply a substantially lower probability of failure in contrast high shareholdings of lower level management such as vice presidents increase default risk significantly these findings suggest that high stakes in the bank induce outside directors and upper level management to control and reduce risk while greater stakes for lower level management seem to induce it to take high risks which may eventually result in bank default some accounting variables such as capital earnings and non performing loans also help predict bank default however other potential stability indicators such as the management structure of the bank indicators of market competition subprime mortgage risks state economic conditions and regulatory influences do not appear to be decisive factors in predicting bank default

deregulation and bank financial policy the standard view that banks can value maximize by exploiting non risk rated deposit insurance ignores the potential loss of a valuable bank charter due to insolvency recognition of this effect changes the bank s optimal financial policy and can induce extreme risk averting as well as risk taking behavior however as the value of the bank charter falls the risk taking strategy is more apt to dominate therefore current deregulation of the banking industry by easing entry and devaluing charters holds the potential for increases in the incidence of insolvency unless offsetting policies are instituted

equivalent variation with uncertain prices abstract government interventions in markets often distort prices when the price consequences are uncertain due to objective uncertainty in the economic environment compensating and equivalent variation must be defined with respect to a cardinal indirect utility function that could be observed from consumer choices on lotteries of price vectors i discuss the bias in approximating the true equivalent variation with measures that depend only on the ordinal not cardinal properties of the indirect utility function which is easier to observe

a framework for assessing credit risk in depository institutions toward regulatory reform abstract this paper develops and illustrates a new method for evaluating the credit risk borne by depository institutions that may prove to be an important element in a regulatory mechanism sensitive to risk in our framework depository institutions are forced to bear the costs of their risk exposure and hence to internalize this cost when extending loans using various loan portfolios and alternative macroeconomic scenarios we present numerical calculations demonstrating the ability of our framework to capture variations in risk exposure and highlighting the significance of portfolio concentrations these calculations are based on an important new source of information that permits an econometric analysis of loan losses by industry

consumer s surplus and price uncertainty this paper investigates the conditions under which expected equivalent variation provides a correct ranking of stabilized and uncertain price situations expected equivalent variation can be recovered from ordinal preferences whereas ex ante equivalent variation requires additional information regarding con sumer attitudes toward income risk the two measures are equal for income risk neutral consumers more important for applied welfare analysis where income risk aversion is presumed expected equivalent variation provides a lower bound for ex ante equivalent variation these two features of expected equivalent variation commend it as a viable welfare measure for applied work copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

global patterns of materials use a socioeconomic and geophysical analysis abstract human use of materials is a major driver of global environmental change the links between materials use and economic development are central to the challenge of decoupling of materials use and economic growth dematerialization this article presents a new global material flow dataset compiled for the year 2000 covering 175 countries including both extraction and trade flows and comprising four major material categories biomass construction minerals fossil energy carriers and ores industrial minerals first we quantify the variability and distributional inequality gini coefficients in international material consumption we then measure the influence of the drivers population gdp land area and climate this analysis yields international income elasticities of material use finally we examine the coupling between material flows and between income and material productivity measured in economic production per tonne material consumed material productivity is strongly coupled to income and may thus not be suitable as an international indicator of environmental progress a finding which we relate to the economic inelasticity of material consumption the results demonstrate striking differences between the material groups biomass is the most equitably distributed resource economically the most inelastic and is not correlated to any of the mineral materials the three mineral material groups are closely coupled to each other and economic activity indicating that the challenge of dematerializing industrial economies may require fundamental structural transformation our analysis provides a first systematic investigation of international differences in material use and their drivers and thus serves as the basis for more detailed future work

allocating bank regulatory powers lender of last resort deposit insurance and supervision abstract we examine the optimal institutional allocation of bank regulation we find that centralizing the lending of last resort and deposit insurance functions in a regulator leads to excessive forbearance it also leads the bank to invest suboptimally in loans giving this regulator supervision improves on both problems but it still does not lead to the efficient outcome in the multi regulator arrangement we find that it is beneficial to give supervision to the deposit insurer the choice between the unified regulator arrangement and the multi regulator arrangement involves a trade off the multi regulator arrangement reduces the forbearance problem at high levels of liquidity shortage but may exacerbate it at low levels these results assume the absence of information frictions when banks are better informed than regulators we show that regulators may have an incentive not to share private information suggesting it is important to consider regulators informational advantages when deciding on the allocation of regulation

the physical economy of the european union cross country comparison and determinants of material consumption abstract in this paper we investigate what determines observed differences in economy wide material use among the eu 15 member states the empirical basis for our analysis is an extended and revised material flow data set for each of the eu 15 countries in time series from 1970 to 2001 this data set comprises consistent data for domestic extraction imports and exports as well as for derived material flow indicators broken down by 12 types of materials we compare the level and composition of domestic material consumption dmc in the eu 15 member states and identify determinants of the observed differences across the european union member states overall dmc per capita varies by a factor of three ranging between 12 tonnes per capita in italy and the united kingdom and 37 tonnes per capita in finland this variability of dmc in the eu 15 is in a similar order of magnitude as the variability of gdp per capita or total primary energy supply per capita linear correlation analysis reveals that national income and final energy consumption relate to material use but cannot fully account for the observed differences in material consumption by breaking down overall material flow indicators into 12 categories of materials and analysing their use patterns in detail we identified a number of factors socio economic and natural that influence the level and composition of economy wide material use many of these factors are specific for certain types of materials others are more general and quite some driving factors counteract each other regarding the direction of their influence concluding we summarize the most important driving factors for domestic material consumption stressing population density as largely neglected but important explanatory variable for material use patterns discuss issues of environmental significance aggregation and the use of different denominators in material flow accounting and suggest a re interpretation of dmc

environmental externalities and immiserizing structural changes in an economy with heterogeneous agents the way in which natural and physical capital are accumulated distributed and harnessed underpins the functioning and sustainability of the productive system of each society as well as its social stratification significant changes in the interactions between natural and physical capital accumulation give rise to processes of structural change sc which affect not only sectoral composition of the productive system but also social equity and environmental quality we propose a taxonomy of different scs on the basis of distributive environmental and economic outcomes and we study a two sector model with environmental externalities to identify under which conditions each sc can occur our model shows how the type of sc is shaped by the link between agents heterogeneity in terms of productive asset endowment and their vulnerability to environmental degradation in particular we find that a sc associated with reduction in poverty and in environmental pressures can occur only if productivity of the physical capital intensive sector increases but its rate of environmental impact remains relatively lower than that of the natural capital intensive sector

the bank capital decision a time series cross section analysis this paper seeks to explain the dramatic decline in capital to asset ratios in u s commercial banks during the last two decades it is hypothesized that the rise in nominal interest rates during this period might have contributed substantially to the fall in capital ratios time series cross section estimation supports the hypothesis regarding the interest rate bank capital is the sum of equity plus debt subordinated to deposits capital provides a cushion that protects the bank from insolvency when the value of its assets falls a bank can meet its obligations to depositors as long as losses on its asset portfolio do not exceed its capital the ratio of capital to total assets in u s commercial banks has fallen dramatically in the last two decades dropping from 11 7 percent in 1961 to 5 7 percent in 1978 the lowest level since world war ijj1 figure 1 shows the decline in the ratio of capital to noncash assets these figures suggest that the federal deposit insurance corporation fdic and uninsured depositors are being exposed to increased probabilities of losses from bank insolvencies however relatively little empirical research has been devoted to the determinants of the bank capital decision further the existing work see for example peltzman 24 mingo 20 or mayne 17 18 uses only cross sectional data and therefore does not necessarily explain the decline in capital to asset ratios over time previous empirical research has also focused on book values rather than market values of debt and equity although market values provide better estimates of the protection afforded by capital this practice might be partly justified by the attention paid to book values by bank regulators however the increasing use of qualitative factors as well as book ratios in capital regulation indicates that regulators are aware of the deficiencies in book values many of the so called qualitative considerations are precisely the factors that distinguish market from book value 6 pp 78 80 finally difficulties arise over the proper measure of capital the empirical studies cited above treat equity and debt capital symmetrically both equity and assistant professor of finance economics boston university school of management this paper was originally written as part of a doctoral dissertation at m i t helpful suggestions from robert mcdonald richard schmalensee larry summers and edward j kane are gratefully acknowledged l these statistics are based on the market values of capital and assets the methods used to construct the market value series are described in the appendix capital asset ratios based on book values also have fallen over the period in question although not as severely

optimal bank reorganization policies and the pricing of federal deposit insurance optimal dynamic regulatory policies for closing ailing banks and for deposit insurance premia are derived as functions of the rate of flow of bank deposits and interest rate on deposits the economy s risk free interest rate and the regulators bank audit administration costs under competitive conditions the threshold assets to deposits ratio below which a bank should be optimally closed is shown to be greater than or equal to one optimal deposit insurance premia and probabilities of bank closure are shown to be nondecreasing in the bank s risk on investment and nonincreasing in the bank s current assets to deposits ratio should regulatory agencies close reorganize an ailing federally insured financial institution if so when the recent record rate of failures of savings and loans associations s ls has renewed the urgency of this question the regulatory agencies are empowered but not required to reorganize financial institutions that are statutorily insolvent i e have zero or negative regulatory net worth recently regulators have in many instances permitted insolvent financial institutions to remain in operation 2 also while debating on the increase of the proposed funding of the federal deposit insurers the u s congress argued whether it would be desirable and if so when to close more s ls thus when regulators should close a troubled financial institution has become a major question of bank regulatory policy while the existing academic literature provides powerful insights into the structure and pricing of the insurers liability this literature offers very little guidance regarding the timing of bank reorganizations 3 indeed to the best of our knowledge the value of the federal

obtaining contingent bounds for non contingent equivalent variations abstract government policies often distort the price distribution rather than stabilize or unstabilize prices recent examples are trade reforms previous contingent bounds of noncontingent equivalent variations are still valid however additional assumptions are required a byproduct is a generalized risk premium

a contingent claim analysis of a regulated depository institution abstract a model of financial intermediation to determine the market value of bank equity deposits and deposit insurance is developed the implicit equilibrium interest rate on deposits is derived and analyzed three types of risks are considered in the model interest rate risk financial risk and default risk the effect of different regulatory measures such as capital adequacy reserve and liquidity requirements deposit insurance and interest rate ceilings is analyzed and their impact on the bank behavior is also assessed moreover we investigate the interactions among these measures to determine which are dominant under alternative circumstances and which are redundant

a reexamination of the over or under pricing of deposit insurance this study shows how fair deposit insurance premia can be calculated using data on bank stock prices interest rate movements and income and balance sheet accounts fair insurance premia are estimat ed under the alternative assumptions that the fdic provides either a limited term variable rate or unlimited term insurance cont ract to banks the paper s results suggest that for nearly all of the large commerical banks in the sample the actual insurance premium c harged by the fdic falls between the bounds of fair limited term and unlimited term insurance premia copyright 1987 by ohio state university press

charter value minimum bank capital requirement and deposit insurance pricing in equilibrium abstract this paper shows that leaving insolvent banks with large enough charter values open can be optimal and derives normative bank closure reorganization policies based on the liquidation value of assets and the charter value the charter value of a bank is broadly defined as the value that would be foregone due to a closure our simulations of risk taking show that an optimal forbearance for an insolvent bank with a large enough charter value alleviates the moral hazard problem this is because increasing the risk raises the probability of losing the charter value although it generates a moral hazard gain

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

measurement of consumer gains from market stabilization for most cases of practical significance in which partial equilibrium analysis is appropriate there is little difference between exact measures of consumer gains from market stabilization and approximations such as expected change in marshallian or hicksian consumer surplus careful specification of the nature of stabilization is more crucial than the choice of welfare measure it is important to represent correctly the demand curvature and supply response and to determine whether general equilibrium responses can be ignored in any event an improved analytical approximation and a simple numerical method for calculating the exact measures make it unnecessary to rely on suspect measures

a note on the existence and characteristics of fair deposit insurance premia abstract this paper treats the fair deposit insurance premium as a fixed point of the value of insurance per dollar of deposits using the standard model of the value of deposit insurance and treating the premium as an up front cost to a bank it is shown that the fixed point premium exists and is unique under fairly general conditions it is shown that ignoring the premium as an up front cost may lead to underestimation of the fair premium in addition the fixed point model suggests that premium rates should vary with the ratio of deposits to total liabilities

fair insurance guaranty premia in the presence of risk based capital regulations stochastic interest rate and catastrophe risk abstract a multiperiod model is developed to measure the costs posed to the guaranty fund in a setting that incorporates risk based capital regulations interest rate risk and the possibility of catastrophic losses the guaranty contract is modeled as a put option on the asset of the insurance company with a stochastic strike price and an uncertain maturity the impacts of the key factors of this model are examined numerically and shown to make material differences in the costs to the guaranty fund

the pricing of deposit insurance considering bankruptcy costs and closure policies the paper aims to study the pricing issue of deposit insurance with explicit consideration of bankruptcy costs and closure policies full coverage from deposit insurance is imposed by many regulators to stabilize the banking system in the current financial crisis despite of the potential moral hazard problems we argue that bankruptcy cost is an important factor in pricing deposit insurance especially when the insured institution is insolvent applying the isomorphic relationship between deposit insurance and put option we first derive a closed form solution for the pricing model with bankruptcy costs and closure policies then we modify the barrier option approach to price the deposit insurance in which the bankruptcy cost is set as a function of asset return volatility and more realistic closure policies considering possible forbearance can be accounted for the properties of the models are supported by numerical simulations and are consistent with the risk based pricing scheme