an analysis of default risk in mobile home credit abstract there are approximately us 22 billion in outstanding receivables and an active secondary market for mobile home credit in the united states this important segment of the financing industry shares some attributes with traditional home mortgage financing and other attributes with consumer credit in this paper we draw on the mortgage literature to postulate the determinants of default risk for mobile home loans using multivariate logit models we investigate the relevance of payment history loan terms borrower characteristics economic conditions and legal constraints in analyzing loan defaults and delinquencies payment history emerges as the overwhelming factor in predicting the likelihood of default

the effectiveness of india s anti poverty programmes abstract this paper critically evaluates the design of india s anti poverty programmes in recent years successive indian governments have sought to improve the performance of these programmes by decentralising their administration vesting village governments with greater responsibility for their monitoring and oversight an academic literature hypothesises that socioeconomic divisions within villages and the weak political strength of the poor reduces the effectiveness of decentralised programmes since under these conditions elites are able to capture funds intended for the poor this paper argues that the effect of administrative decentralisation of poverty programmes and local public goods on the magnitude of benefits to the poor depends not just on their political strength but also on the incentives the non poor have to improve the welfare of the poor the design of policy pays insufficient attention to such incentive issues empirical analysis provides support for this belief the regression an

credit and market risks measurement in carbon financing for chinese banks abstract this paper concerns the risk analysis of six chinese banks which are involved in carbon financing factor copula is introduced to simulate the corresponding carbon finance credit risk and market risk by latent variables in an indirect method in short the four common factors in carbon financing exchange rates interest rates cer price and brent oil prices are analyzed and explored in factor copula approach that incorporates kmv garch models in two steps the kmv and garch models are used to generate data that reflects the overall credit and market risk associated with each bank both normal copula and t copula functions are used to simulate the parameter estimations for comparison in a new way the value at risk for each of the six banks is calculated through a monte carlo simulation and compared additionally we calculate shock estimates for each factor to explore the changes in both credit risk and market risk given economic shocks also make a hypothetical analysis of the impact of the financial crisis on common factors overall our findings reveal that exchange rates and oil prices are the key factors to consider in carbon financing ping an bank is facing the most risk of all the banks in the sample while the industrial and commercial bank of china is carrying the least risk the results of this analysis gave provide some insight into domestic carbon trading and carbon markets connectivity

evaluating program impacts on mature self help groups in india despite the popularity and the unique nature of women s self help groups in india evidence on the economic impact of these groups is scant on the basis of two rounds of surveys of 2 517 households we use a strategy of double differences and propensity score matching to assess the economic effects of a program that promoted and strengthened self help groups in andhra pradesh in india our analysis finds that longer exposure to the program has a positive impact on consumption nutritional intake and asset accumulation our investigation into the heterogeneity of these effects suggests that even the poorest households are able to benefit from the program

nutrient intake of the poor and its implications for the nutritional effect of cereal price subsidies evidence from china summary we incorporate habit formation into an analysis of the effect of cereal price changes on the nutrient intake of the poor in china we find that the poor s nutrient intake responds asymmetrically to declines and increases in cereal prices and that the asymmetric response of their fat intake may be due to habit formation our results also imply that introducing cereal price subsidies can increase their total energy intake by increasing their calorie intake from fat and protein while ending such subsidies would insignificantly affect their total energy intake but further increase their calorie intake from fat and protein

credit risk measurement developments over the last 20 years abstract this paper traces developments in the credit risk measurement literature over the last 20 years the paper is essentially divided into two parts in the first part the evolution of the literature on the credit risk measurement of individual loans and portfolios of loans is traced by way of reference to articles appearing in relevant issues of the journal of banking and finance and other publications in the second part a new approach built around a mortality risk framework to measuring the risk and returns on loans and bonds is presented this model is shown to offer some promise in analyzing the risk return structures of portfolios of credit risk exposed debt instruments

the high cost of incompletely funding the fslic shortage of explicit capital a useful parallel can be drawn between the alaskan oil spill of 1989 and the flood of red ink spilled in recent years by u s thrift institutions savings and loan associations and savings banks in each case initial damage from the spill was severely compounded by delaying and mishandling the clean up required for more than a decade federal officials refused to acknowledge that the thrift ink spill had compromised the integrity of the supporting deposit insurance fund instead of promptly shoring up the finances of this fund officials used accounting smoke and mirrors to cover up the fund s secularly increasing capital shortage this prolonged refusal to face up to the magnitude of the underfunding imposed enormous costs on society as a whole

modeling correlated market and credit risk in fixed income portfolios abstract current risk assessment methodologies separate the analysis of market and credit risk and thus misestimate security and portfolio risk levels we propose a new approach that relates financial market volatility to firm specific credit risk and integrates interest rate interest rate spread and foreign exchange rate risk into one overall fixed income portfolio risk assessment accounting for the correlation between these significant risk factors as well as portfolio diversification results in improved risk measurement and management the methodology is shown to produce reasonable credit transition probabilities prices for bonds with credit risk and portfolio value at risk measures

prompt corrective action and bank efforts to recover from undercapitalization abstract this study empirically examines the likelihood and timing of bank recoveries from positions of undercapitalization our findings indicate that 1 there appears to be only a limited capacity for banks to correct positions of undercapitalization by growth limitations or dividend restrictions 2 the impact of profitability on recovery is greater the longer a bank remains undercapitalized and 3 equity infusions are the primary mechanism by which banks can recapitalize quickly this evidence is relevant to regulators in their implementation of the fdic improvement act of 1991 which requires that undercapitalized banks take prompt corrective actions to recapitalize quickly under threat of early closure

efficiency and equity in the producer levy of india india s producer levy scheme has been considered a prime example of government market intervention to depress price incentives for farm producers analysis in this study shows that the scheme increases the average producer price for the short run with inelastic supply in this case significant improvements in income distribution can be obtained with little loss of economic efficiency if the scheme is implemented effectively however if the scheme is applied for the long run it might result in market instability more critically the scheme is likely to have an adverse effect on income distribution in the absence of effective implementation

household responses to food subsidies evidence from india abstractthe indian public distribution system is one of the world s largest food security programs and provides a monthly quota of cereals at discounted prices to poor households i study the effec

accounting window dressing and template regulation a case study of the australian credit union industry this article documents the response of cooperative institutions that were required to adhere to new capital adequacy regulations traditionally geared for profit maximising organisations using data from the australian credit union industry we demonstrate that the cooperative philosophy and internal corporate governance structure of cooperatives will lead management to increase capital adequacy ratios through the application of accounting window dressing techniques this is opposite to the intended purpose of template regulation aimed at efficiently increasing operating margins and lowering risk our results raise several debatable issues regarding the ethics of accounting management and the imposition of one shoe fits all external regulation

banker judgement versus formal forecasting models the case of country risk assessment abstract the allocation of credit to less developed countries depends upon lenders judgements of country risk research in psychology suggests that human judgement may be prone to bias this paper uses the institutional investor country credit ratings as indicators of banker judgement in terms of their ability to predict the emergence of arrears on external debt service it is shown that bankers are overly pessimistic about the creditworthiness of less developed countries multivariate statistical models have a higher overall predictive accuracy although they may arguably be outperformed by banker judgement when allowance is made for the differential costs of type i and type ii errors

bayesian models for early warning of bank failures the focus of this research is to demonstrate how probabilistic models may be used to provide early warnings for bank failures while prior research in the auditing literature has recognized the applicability of a bayesian belief revision framework for many audit tasks empirical evidence has suggested that auditors cognitive decision processes often violate probability axioms we believe that some of the well documented cognitive limitations of a human auditor can be compensated by an automated system in particular we demonstrate that a formal belief revision scheme can be incorporated into an automated system to provide reliable probability estimates for early warning of bank failures the automated system examines financial ratios as predictors of a bank s performance and assesses the posterior probability of a banks financial health alternatively financial distress we examine two different probabilistic models one that is simpler and makes more assumptions while the other that is somewhat more complex but makes fewer assumptions we find that both models are able to make accurate predictions with the help of historical data to estimate the required probabilities in particular the more complex model is found to be very well calibrated in its probability estimates we posit that such a model can serve as a useful decision aid to an auditor s judgment process

using semiparametric models to study nutrition improvement and dietary change with different indices the case of china in company with rapid economic growth chinese consumers have seen a remarkable nutrition improvement and a dramatic dietary change this article investigates the driving forces behind these changes with use of the china health and nutrition survey chns data this paper first proposes 10 different indices to measure nutrition improvement and dietary change from different perspectives and then adopts semiparametric panel data models to capture the complicated nonlinear relationship between these nutrition indices and income growth while controlling for other variables parametrically this enables us to directly predict the nutrition improvement and dietary change at different income levels from different aspects this paper particularly finds that nutrition improvement and dietary change will continue in china but will slow down in the future with further income growth

inferring market information from the price and quantity of s l deposits abstract this paper infers market information embedded in the price and quantity of s l deposits while previous empirical research typically treats the risk premium as the key element of deposit interest spread subsidy shifting theory suggests that deposit rates also contain a subsidy shifting premium that arises from an institution s eagerness to fund loan and investment opportunities that extract deposit insurance subsidies this paper examines the existence and the nature of both premiums and shows how regulators can use this information to make regulatory oversight more effective

collateral loan quality and bank risk abstract most commercial loans are made on a secured basis yet little is known about the relationship between collateral and credit risk several theoretical studies find that when borrowers have private information about risk the lowest risk borrowers tend to pledge collateral in contrast conventional wisdom holds that when risk is observable the highest risk borrowers tend to pledge collateral an additional issue is whether secured loans as opposed to secured borrowers tend to be safer or riskier than unsecured loans empirical evidence presented here strongly suggests that collateral is most often associated with riskier borrowers riskier loans and riskier banks

a note on the use of industry relative ratios in bankruptcy prediction abstract the potential for industry relative financial ratios to improve the prediction of firms in financial distress motivated this comparison of model specifications based on either unadjusted or industry relative ratios both specifications yielded stable parameter estimates over the time periods examined however the industry relative specification appeared to add incremental information not contained in the model based on the unadjusted financial ratios the converse case did not hold in addition with the industry relative specification ex post forecast accuracy was slightly improved relative to the ex ante forecast while with the unadjusted model specification ex post forecast accuracy declined from that obtained ex ante

universal food security program and nutritional intake evidence from the hunger prone kbk districts in odisha this article provides evidence on the role of consumer food subsidies in improving nutritional intake and diet quality by evaluating the expansion of the government food assistance program coverage in the hunger prone state of odisha in india in 8 districts of odisha popularly known as the kalahandi balangir koraput kbk region which is notable for extreme poverty and starvation deaths the government did away with the targeted food assistance program in 2008 and made the scheme universal using a difference in difference methodology over two repeated cross sectional household surveys this article finds that the shift from targeted to a universal food security program in the kbk region of odisha has led to an improvement in the household nutritional intake and diet quality further examination suggests that proportion of households consuming below the recommended dietary allowance of calorie fats and protein has declined significantly in this region post the intervention

the impact of default risk on the prices of options and other derivative securities abstract this paper presents a model for valuing derivative securities when there is default risk the holder of a security is assumed to recover a proportion of its no default value in the event of a default by the counterparty both the probability of default and the size of the proportional recovery are random the paper shows how data on bonds issued by the counterparty can be used to provide information about model parameters

forbearance deposit insurance pricing and incentive compatible bank regulation abstract this paper examines the incentive compatible role of regulatory forbearance policy in the context of optimal bank regulation under moral hazard we show that when a bank s asset portfolio returns have market risk the regulator can influence the bank s choice of ex ante risk by delaying the closure of an insolvent bank the optimal closure policy involves co ordinating the closure decision with market wide performance such a policy may significantly alleviate the bank s ex ante risk shifting problem furthermore even fixed rate deposit insurance can be optimal when combined with a sound forbearance policy and a minimum capital standard

an analysis of the consistency of banks internal ratings abstract internal ratings based models are used for a variety of important bank and regulatory decisions thus model risk the potential for different models to provide different probability of default pd estimates is of crucial importance using a comprehensive german credit registry dataset from 40 banks and 17 000 corporate borrowers from 2008 2012 we assess the consistency of internal pd estimates across banks we find three main results first the variability of pd estimates for the same borrower across banks is large second bank fixed effects explain 5 of the variation in pd estimates across banks while 95 of the variation is idiosyncratic for the 10 largest banks in our sample reported regulatory capital ratios would change by a maximum of 10 equivalent to approximately 1 percentage point when using average risk weights from all banks instead of risk weights based on banks individual pd estimates third we explore various bank characteristics that explain the size of bank fixed effects

the implications of corporate bond ratings drift examination of the ratings of over 7000 bonds issued in the 1970 88 period reveals that some 40 to 80 of bonds initially rated bb and above can be expected to experience at least one rating change in the 1 0 years following issuance a rated bonds appear to be more stable than aaarated bonds bb rated bonds the highest junk bond category are the least stable furthermore bonds initially rated a and above have a greater tendency to be downgraded than to be upgraded among the investment grades only bonds initially rated bbb tend to be upgraded more than they are downgraded as for bonds originally rated non investment grade junk there does not appear to be a tendency toward either upgrades or downgrades in the sample period

economic and social impacts of an innovative self help group model in india summary we assess the impact of an approach in the indian state of andhra pradesh that combines micro credit with efforts to target the poor address their specific needs and enhance their economic potential our results support the pro poor nature of the program and point toward benefits in terms of female empowerment and nutritional intake but not asset formation or income for program participants and other villagers while study of longer term effects is desirable this suggests that even in the short term the program helped improve consumption smoothing and income diversification

original issue high yield bonds aging analyses of defaults exchanges and calls this paper presents an aging analysis of 741 high yield bonds and finds default exchange and call percentages substantially higher than reported in earlier studies by december 31 1988 cumulative defaults are 34 percent for bonds issued in 1977 and 1978 and range from 19 to 27 percent for issue years 1979 1983 and from 3 to 9 percent for issue years 1984 1986 exchanges are also a significant factor although they often are followed by default moreover a significant percentage of high yield debt 26 47 percent for 1977 1982 has been called by december 31 1988 approximately one third of the bonds issued in 1977 1982 has defaulted or been exchanged and an additional one third had been called on average only 28 percent of these issues are still outstanding there is no evidence that early results for more recent issue years differ markedly from issue years 1977 to 1982

do binary collateral outcome variables proxy collateral levels the case of collateral from start ups and existing smes this paper is designed to test whether the factors which affect the decision to collateralise business loans affect the level of collateralisation in the same manner if the level of collateralisation does matter the provision of collateral becomes more than a goodwill gesture to placate banks and more a device to ameliorate the risk of lending we use a thitherto unseen dataset from a u k retail bank comprising 4 618 transfers and start ups ts group who applied for business loans and overdrafts between january 1998 and january 2000 the control sample comprised 9 596 existing businesses from the same period our unique dataset permits an analysis of this kind for the first time because it contains a continuous variable for collateral unlike previous studies existing businesses exhibit a higher frequency binary outcome and level tobit outcome of collateral than the businesses who are start ups or have transferred from another bank only when distortions within the data are not controlled for these distortions negate the value of binary collateral variables factors such as business type and loan purpose are useful at explaining the likelihood of a borrower having his loan collateralised and the level of collateralisation for borrowers who provided collateral or not

multiple event incidence and duration analysis for credit data incorporating non stochastic loan maturity summary applications of duration analysis in economics and finance exclusively employ methods for events of stochastic duration in application to credit data previous research incorrectly treats the time to pre determined maturity events as censored stochastic event times the medical literature has binary parametric cure rate models that deal with populations that never experienced the modelled event we propose and develop a multinomial parametric incidence and duration model incorporating such populations in the class of cure rate models this is the first fully parametric multinomial model and is the first framework to accommodate an event with pre determined duration the methodology is applied to unsecured personal loan credit data provided by one of australia s largest financial services organizations this framework is shown to be more flexible and predictive through a simulation and empirical study that reveals simulation results of estimated parameters with a large reduction in bias superior forecasting of duration explanatory variables can act in different directions upon incidence and duration and variables exist that are statistically significant in explaining only incidence or duration

can targeted food programs improve nutrition an empirical analysis of india s public distribution system abstract despite the widespread belief that a substantial assault on poverty requires targeting scarce resources toward the poor practitioners frequently claim that targeted programs deliver fewer benefits to poor households than do universal programs this article evaluates this concern through an analysis of india s targeted food distribution program the public distribution system it first examines the case for targeting by assessing the responsiveness of caloric intake to the amount of the food grain subsidy a low elasticity suggests that improvements in nutrition may require large subsidies and hence a targeted program it then examines whether targeting adversely affects the probability of poor households participating in the program the empirical analysis identifies the effect of the program by combining time varying policy changes in the value of the program with cross sectional variation in program benefits generated by variation in market prices the results confirm the low responsiveness

forecasting losses on a liquidating long term loan portfolio abstract assessing the condition of financial institutions and valuation of loan portfolios in secondary markets require the estimation of exposure to losses on existing portfolios of long term loans data from a major u s financial institution were used to construct a forecasting model with markovian structure and nonstationary transition probabilities the model proved to be effective in representing changes in probability of default that occur as individual loans mature and accurate in forecasting aggregate defaults and losses on a nationwide portfolio of long term loans

federal deposit insurance regulatory policy and optimal bank capital this paper seeks to explain the combination of explicit and implicit pricing for deposit insurance employed by the fdic essentially the fdic sells two products insurance and regulation to span the product space it must and does set two prices we argue that the need to establish regulatory disincentives to bank risk taking is the heart of the controversy over the adequacy of bank capital and that the ability to close risky banks before exhausting their charter value i e the value of their right to continue in business stands at the center of these disincentives and in front of the fdic s insurance reserves just as a book shouldn t be judged by its cover a government agency shouldn t be judged by the words behind its initials with the fdic federal deposit insurance corporation the agency s name describes only part of its formal operations the fdic is quasi governmental has a regional structure and sells deposit insurance however the initials fail to convey the fdic s critical place in the governmental regulatory structure as the sole federal overseer of the approximately 8900 state chartered commercial banks that have chosen not to belong the federal reserve system reflecting the federal reserve s membership problem the number of these banks is growing year by year besides selling deposit insurance at bargain explicit rates the fdic performs four regulatory functions 1 entry regulation it passes on new banks applications for deposit insurance and on branch and merger proposals as well thereby protecting the value of existing bank charters 2 examination two thirds of fdic employees are concerned with inspecting bank records and supervising managerial activity 3 regulation of deposit rates and conditions for withdrawal by tradition fdic policies on these matters conform entirely with regulations applicable to federal reserve member banks and 4 disposition of failed banks when an insured bank fails the fdic usually chooses not to liquidate it 2

the importance and subtlety of credit rating migration abstract bond ratings are usually first assigned by rating agencies to public debt at the time of issuance and are periodically reviewed by the rating companies if deemed warranted changes in ratings are assigned after the review a change in a rating reflects the agency s assessment that the company s credit quality has improved upgrade or deteriorated downgrade a coincident effect in some proximity to the date of the rating change is a change in the price of the issue this article reports on an in depth investigation of the expected ratings changes drift over time our analysis compares rating changes from the two major agencies moody s and s p over the period 1970 1996 for the first time results from several studies which have documented and analyzed these data patterns are contrasted depending upon which study one uses the results and implications can be very different we expect that the findings will have implications for such diverse practitioners as bond investors who concentrate on any or all segments of the corporate bond market eg high yield bond and crossover investors mark to market analysts and traders in the new and growing market for credit risk derivatives and for the many analysts who properly view that credit quality assessment involves the entire spectrum of possible outcomes not just default a follow up study will analyze in greater depth two critical characteristics of the rating drift phenomenon these are unexpected as well as expected rating migration patterns and also the implied impact on the price of the fixed income instrument

informal monitoring and enforcement mechanisms in public service delivery evidence from the public distribution system in india abstract this paper shows that social networks provide informal monitoring and enforcement services that can curb leakages and improve the efficacy of public service delivery we examine india s targeted public distribution system under which poor households are entitled to subsidized grains and fuel we show that scheduled castes scs are more likely to buy grains when facing sc delivery agents but there is no difference in the take up of fuel we develop a theoretical framework positing that increased informal monitoring and enforcement drive our findings we test our theory using observational survey data and unique data that we collected our empirical results provide strong support for the testable implications

evaluating credit risk models over the past decade commercial banks have devoted many resources to developing internal models to better quantify their financial risks and assign economic capital these eaorts have been recognized and encouraged by bank regulators recently banks have extended these eaorts into the field of credit risk modeling however an important question for both banks and their regulators is evaluating the accuracy of a model s forecasts of credit losses especially given the small number of available forecasts due to their typically long planning horizons using a panel data approach we propose evaluation methods for credit risk models based on cross sectional simulation specifically models are evaluated not only on their forecasts over time but also on their forecasts at a given point in time for simulated credit portfolios once the forecasts corresponding to these portfolios are generated they can be evaluated using various statistical methods 2000 elsevier science b v all rights reserved

evaluation of credit risk based on firm performance abstract this paper investigates whether productive inefficiency measured as the distance from the industry s best practice frontier is an important ex ante predictor of business failure we use samples of french textiles wood and paper products computers and r d companies to obtain efficiency estimates for individual firms in each industry these efficiency measures are derived from a directional technology distance function constructed empirically using non parametric data envelopment analysis dea methods estimating binary and ordered logit regression models we find that productive efficiency has significant explanatory power in predicting the likelihood of default over and above the effect of standard financial indicators

on the relationship among efficiency capitalization and risk does management matter in local banking market abstractby employing a granger causality methodology in a panel data framework this article explores the relationship among efficiency capitalization and credit risk within the local italian banking system focusing the attention on cooperative banks we specifically test whether managers take more risks in highly concentrated markets i e monopoly than in partially competitive markets i e duopoly the evidence shows that in more concentrated markets management efficiency generates a decrease in risk taking rejecting the bad management hypothesis with respect to the partially competitive markets results are consistent with the idea that banks with less local competition are able to increase their profits by indulging more freely in rent seeking behaviour minimizing their risk taking and consequently improving the quality of their assets through additional screening processes the financial crisis does not seem to affect the conduct of management in terms of bank investment decisions and risk

will developing country nutrition improve with income a case study for rural south india aggregate estimates of food expenditure are consistent with such a possibility implying income expenditure elasticities close to one however the high degree of aggregation at which such estimates are made means that the considerable increase in price per nutrient as income increases is ignored and the nutrient elasticities are therefore overstated estimates for a rural south indian sample indicate that this bias is considerable and that the true nutrient elasticities with respect to income may be close to zero

real estate prices and bank stability abstract real estate prices can deviate from their fundamental value due to rigid supply heterogeneity in quality and various market imperfections which have two contrasting effects on bank stability higher prices increase the value of collateral and net wealth of borrowers and thus reduce the likelihood of credit defaults in contrast persistent deviations from fundamentals may foster the adverse selection of increasingly risky creditors by banks seeking to expand their loan portfolios which increases bank distress probabilities we test these hypotheses using unique data on real estate markets and banks in germany house price deviations contribute to bank instability but nominal house price developments do not this finding corroborates the importance of deviations from the fundamental value of real estate rather than just price levels or changes alone when assessing bank stability

when and why did fslic resolve insolvent thrifts abstract this paper develops an optimal resolution triage strategy for a deposit insurance regulator the regulator seeks to maximize the market value of the deposit insurance enterprise subject to budget personal bureaucratic political informational and legal restraints testable hypotheses are derived concerning the timing of insolvency resolutions the paper tests these hypotheses using a two step hazards model and a data set of thrift resolutions during 1985 1989 the tests focus on the relative roles of value maximization and constraint pressures in decisions to grant capital forbearance the results suggest that regulators seldom conformed to the benchmark resolution timing strategy that an unconflicted agent would follow under only a budget constraint instead the evidence shows that the resolution timing decision was distorted by personal political informational and legal constraints

targeting of food aid in rural ethiopia chronic need or inertia abstract this paper quantifies the factors underlying the allocations of food aid by the ethiopian government together with local and international non governmental organizations ngos both across rural regions and to households within regions we focus on reduced form specifications in which as little structure as possible is put on the decision rules because so little is known about these rules and their implementation nationally representative rural household data from ethiopia collected in 1996 are used the paper determines the extent to which food aid both free distribution and food for work is targeted to poor households and communities we also demonstrate that food aid allocations display a large degree of spatial continuity over time and are concentrated in areas that at least during the time of the survey are not the poorest the paper attempts to disentangle two competing explanations for the apparent spatial rigidity of food aid allocations that the recipient areas are chronically needy or that needs shift geographically from 1 year to the next but that fixed costs in setting up operations and in the process of identifying needs lead to a degree of inertia in the location of food aid programs over time we conclude that the evidence best fits the inertia explanation

ratings assignments lessons from international banks this paper estimates ordered logit and probit regression models for bank ratings which also include a country index to capture country specific variation the empirical findings provide support to the hypothesis that the individual international bank ratings assigned by fitch ratings are underpinned by fundamental quantitative financial analyses also there is strong evidence of a country effect our model is shown to provide accurate predictions of bank ratings for the period prior to the 2007 2008 banking crisis based upon publicly available information however our results also suggest that quantitative models are not likely to be able to predict ratings with complete accuracy furthermore we find that both quantitative models and rating agencies are likely to produce highly inaccurate predictions of ratings during periods of financial instability

statistical properties of country risk ratings under oil price volatility evidence from selected oil exporting countries abstract this paper focuses on the application of panel models for identification and analysis of influence of oil price volatility on statistical properties of country risk ratings which stem from uncertainty of macroeconomic fluctuations firstly two statistical properties of country risk ratings volatility clustering and asymmetrical revision were identified in a theoretical framework based on cruces 2006 secondly considering the oil price volatility numerical experiments were conducted based on extended models to test and verify specific properties of country risk ratings in selected oil exporting countries empirical results suggest that properties of country risk remain comparatively steady despite oil price volatility it is also found that the oil price volatility can obviously exaggerate the country risk volatility as it happened during 2007 2009 country clustering based on the properties of country risk ratings shows that the selected countries maintain a significant clustering tendency these features are of great importance for estimating risk exposure of international trade and investments in oil export during extreme situations

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

measuring the true profile of taxpayer losses in the s l insurance mess abstract this research shows that conservative methods of projecting and discounting cash flows if applied to information already collected in the fhlbb s reporting system would have reflected the size of the s l deposit insurance losses long before taxpayers were aware of the extent of the mess official data show fslic reserves of 4 6 billion in 1986 in sharp contrast our conservative estimate puts imbedded losses for that year at 45 3 billion these methods prove insensitive to arbitrariness in the assumptions needed to operationalize the discounting process and measure the extent of guilty knowledge it is fair to presume officials possessed supporting an incentive breakdown theory of the problem over presumptions of innocent ignorance the policy implication is that taxpayers need to impose on government regulatory agents a better information system and better enforcement of those agents obligations to the public

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

asymmetric intrahousehold allocation of calories in china to analyze intrahousehold calorie allocation we propose a new framework that takes into account asymmetric consumption behavior due to liquidity constraints and loss aversion we find that intrahousehold calorie allocation responds asymmetrically to expected declines and increases in household food availability in china compared with previous studies based on symmetric consumption behavior our framework provides stronger evidence of gender bias in intrahousehold calorie allocation among children in urban areas and among elderly people in rural areas and of demographic bias between girls and prime age adults in both urban and rural areas implications for demographic targeting in nutrition programs are discussed copyright 2010 oxford university press

relative price changes as aggregate supply shocks this paper proposes a theory of supply shocks or shifts in the short run phillips curve based on relative price changes and frictions in nominal price adjustment when price adjustment is costly firms adjust to large shocks but not to small shocks and so large shocks have disproportionate effects on the price level therefore aggregate inflation depends on the distribution of relative price changes inflation rises when the distribution is skewed to the right and falls when the distribution is skewed to the left we show that this theoretical result explains a large fraction of movements in postwar u s inflation moreover our model suggests measures of supply shocks that perform better than traditional measures such as the relative prices of food and energy

is the pds already a cash transfer rethinking india s food subsidy policies abstractcritics argue that india s mismanaged public distribution system pds which sells subsidised cereals to poor families should be replaced by cash transfers others fear cash may be misused using national sample survey data this article demonstrates that families treat additional pds subsidies wholly as a source of cash exactly like a cash transfer more worryingly cereal consumption has not increased despite higher real subsidies moreover neither the pds nor cash transfers are likely to raise total food expenditure in poor families finally therefore the paper explores how higher food consumption and other objectives of pds subsidies may be achieved

an analysis and critique of the bis proposal on capital adequacy and ratings abstract this paper examines two specific aspects of stage 1 of the bank for international settlement s bis s proposed reforms to the 8 risk based capital ratio we argue that relying on traditional agency ratings could produce cyclically lagging rather leading capital requirements resulting in an enhanced rather than reduced degree of instability in the banking and financial system despite this possible shortcoming we believe that sensible risk based weighting of capital requirements is a step in the right direction the current risk based bucketing proposal which is tied to external agency ratings or possibly to internal bank ratings however lacks a sufficient degree of granularity in particular lumping a and bbb investment grade corporate borrowers together with bb and b below investment grade borrowers severely misprices risk within that bucket and calls at a minimum for that bucket to be split into two we examine the default loss experience on corporate bonds for the period 1981 1999 and propose a revised weighting system which more closely resembles the actual loss experience on credit assets

the probability of bankruptcy a comparison of empirical predictions and theoretical models abstract the last decade has witnessed the development of many empirical models to predict corporate bankruptcy and of several bankruptcy theories this paper reviews and integrates these two strands of research and finds a substantial amount of overlap however the overlap is not perfect the paper presents a new theory of bankruptcy that appears to fit the data better the paper also suggests directions for future empirical and theoretical research

credit risk assessment using a multicriteria hierarchical discrimination approach a comparative analysis corporate credit risk assessment decisions involve two major issues the determination of the probability of default and the estimation of potential future benefits and losses for credit granting the former issue is addressed by classifying the firms seeking credit into homogeneous groups representing different levels of credit risk classification discrimination procedures commonly employed for such purposes include statistical and econometric techniques this paper explores the performance of the m h dis method multi group hierarchical discrimination an alternative approach that originates from multicriteria decision aid mcda the method is used to develop a credit risk assessment model using a large sample of firms derived from the loan portfolio of a leading greek commercial bank a total of 1411 firms are considered in both training and holdout samples using financial information through the period 1994 1997 a comparison with discriminant analysis da logit analysis la and probit analysis pa is also conducted to investigate the relative performance of the m h dis method as opposed to traditional tools used for credit risk assessment 2002 elsevier science b v all rights reserved

path modelling to bankruptcy causes and symptoms of the banking crisis this article studies the bankruptcy of us banks since 2009 it first analyses the financial symptoms that precede bankruptcy such as low profitability insufficient revenue or low solvency ratios it also goes into the causes of these symptoms it poses several hypotheses on causes of failure such as loan growth some of them risky specialization in this case concentration in real estate and the pursuit of a turnover driven strategy neglecting margin it presents and tests a structural equation modelling based on partial least squares path modelling pls pm and logistic regression results show that 5 years before the crisis failed banks had compared to solvent banks the following higher loan growth higher concentration on real estate loans higher risk ratios higher turnover but lower margins a relationship is found between symptoms and causes failed banks present a significant relationship between the percentage of real estate loans and risk this relationship is negative in excellent b

inflation targeting and core inflation this paper examines the interaction of core inflation and inflation targeting as a monetary policy regime interest in core inflation has grown because of inflation targeting core inflation is defined in numerous ways giving rise to many potential measures this paper defines core inflation as the best forecaster of inflation a cross country study finds before the start of inflation targeting but not after core inflation differs between non inflation targeters and inflation targeters through conditional regressions inflation expectations as measured by core inflation have not changed with the advent of inflation targeting nor do they differ from non targeters jel classification e52 and e31 cible de maitrise de l inflation et inflation sous jacente ce texte examine l interaction entre l inflation sous jacente et l utilisation de cibles de maitrise de l inflation dans un regime de politique monetaire l interet pour l inflation sous jacente a crua proportion que l utilisation de cibles a cru l inflation sous jacente est definie de bien des manieres et se prete a plusieurs mesures potentielles ce texte la definit comme le meilleur predicteur de l inflation une etude transversale de plusieurs pays revele que l inflation sous jacente differe entre les pays qui ont des cibles et ceux qui n en n ont pas avant qu on commence a cibler mais pas apres via des regressions conditionnelles on montre que les anticipations d inflation telles que mesurees par l inflation sous jacente n ont pas change avec l arrivee du ciblage et qu elles ne different pas de celles des pays qui ne ciblent pas

combining accounting data and a structural model for predicting credit ratings empirical evidence from european listed firms abstract ratings issued by credit rating agencies cras play an important role in the global financial environment among other issues past studies have explored the potential for predicting these ratings using a variety of explanatory factors and modeling approaches this paper describes a multi criteria classification approach that combines accounting data with a structural default prediction model in order to obtain improved predictions and test the incremental information that a structural model provides in this context empirical results are presented for a panel data set of european listed firms during the period 2002 2012 the analysis indicates that a distance to default measure obtained from a structural model adds significant information compared to popular financial ratios nevertheless its power is considerably weakened when market capitalization is also considered the robustness of the results is examined over time and under different rating category specifications

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

credit risk in private debt portfolios default loss severity and average loss rates for a large sample of privately placed bonds are presented and compared with loss experience for publicly issued bonds the chance of very large portfolio losses is estimated and some determinants of such losses are analyzed results show ex ante riskier classes of private debt perform better on average than public debt both diversification and the riskiness of individual portfolio assets influence the bad tail of the portfolio loss distribution private placements are similar to corporate loans in that both are monitored private debt the results are thus relevant to management and securitization of private debt portfolios generally more than half of nonfinancial corporate debt finance is iss ued privately and decisions of the financial intermediaries that invest in such debt depend importantly on its credit risk regulators of such institutions are similarly attentive to portfolio credit risk and it is an important consideration in the design of securitizations of pools of private debt in spite of its importance little is known empirically about private debt credit risk especially ex ante risk as a function of portfolio characteristics many studies have examined the loan portfolio performance of banks thrifts and insurance companies but the ex ante risk characteristics of the portfo

determinants of thrift institution resolution costs this paper provides a detailed examination of the cost imposed by thrift institutions resolved during the period 1980 1988 a simple model is presented to explain the cost of resolution this model is tested empirically with a comprehensive data set that permits us to avoid some of the econometric problems present in earlier studies the empirical evidence suggests that the model that explains resolution costs in the late 1980s is significantly different from the model for either the middle or early 1980s this evidence is consistent with the changing nature of the thrift crisis and changes in the regulator s closure rule our econometric evidence moreover is consistent with the hypothesis that for troubled institutions tangible net worth systematically understates market value net worth in addition the importance of including time effects as well as institution effects as determinants of the cost of resolution is revealed the sharp increase in market interest rates in late 1979 and early 1980 and the deregulation of deposit rates led to record losses in the thrift industry in the early 1980s and to a major erosion of the industry s capital many institutions never fully recovered from these problems and most currently insolvent thrift

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

the demand for food and calories we investigate nutrition and expenditure in rural maharashtra in india we estimate that the elasticity of calorie consumption with respect to total expenditure is 0 3 0 5 a range that is in accord with conventional wisdom the elasticity declines only slowly with levels of living and is far from the value of zero suggested by a recent revisionist literature in these indian data the calories necessary for a day s activity cost less than 5 percent of the daily wage which makes it implausible that income is constrained by nutrition rather than the other way around

weighted median inflation is this core inflation this paper investigates core inflation defined as the best predictor of inflation i compare forecasts obtained using the mean weighted median trimmed mean and less food and energy inflation rates for the consumer price index and the personal consumption expenditure deflator for the current u s monetary policy regime another issue addressed is that of the systematic bias that exists due to the differences in means of these measures i test whether correcting for this bias can lead to better inflation forecasts this paper finds that adjusting for bias improves forecasting and that the weighted median is a better forecaster than the alternative measures and thus is a good measure of core inflation

applying portfolio theory to global bank lending abstract portfolio theory provides some insights into how a bank should manage its global exposures practical application of some of the principles of portfolio analysis is possible if comparable credit ratings are available and if the impact on each loan s rating of likely future events can be assessed if further restrictive assumptions are made about which quality dimensions of the portfolio are more important and how much more important and if judgements can be quantified about what risk return tradeoffs are acceptable then it is possible to derive measures to guide exposure and pricing decisions this article is related to the other papers in this special issue in that country and corporate risk assessment methodologies can provide important inputs into the portfolio analysis this paper however attempts to go beyond the evaluation of risk at the level of individual companies countries or other loan customers and to focus instead on the problem of managing the riskiness of the overall bank loan portfolio

a factor analytic approach to bank condition abstract this paper explores a new approach to early warning systems for commercial banks factor analysis and logit estimation are used to measure the condition of individual institutions and to assign each of them a probability of being a problem bank the model employs widely used financial ratios and information taken from bank examinations the factors produced by the model for use in the logit estimation are very similar to the camel rating system used by bank examiners empirical results show that the combination of factor analysis and logit estimation is a promising method of evaluating bank condition

bank recapitalization regulatory intervention and repayment we use prudential supervisory data for all german banks during 1994 2010 to test if regulatory interventions affect the likelihood that bailed out banks repay capital support accounting for the selection bias inherent in nonrandom bank bailouts by insurance schemes and the endogenous administration of regulatory interventions we show that regulators can increase the likelihood of repayment substantially an increase in intervention frequencies by one standard deviation increases the annual probability of capital support repayment by 7 sturdy interventions like restructuring orders are effective whereas weak measures reduce repayment probabilities intervention effects last up to 5 years

the indian public distribution system as provider of food security evidence from child nutrition in andhra pradesh abstract we study whether a sudden increase of the price of rice supplied by the indian public distribution system in andhra pradesh a large indian state had a negative impact on child nutrition a few months after the price increase a health survey started to record weight for a large sample of children the data collection continued for several months so that children measured later lived for a longer period of time in a less favorable price regime using different estimation techniques we find that longer exposure to high prices are not accompanied by worse nutritional status as measured by weight for age

government loan guarantees and the credit decision making structure governments can alleviate the problem of banks denying credit to high risk borrowers and excluding weaker sectors from borrowing by introducing state guaranteed loan programs the main contribution of this paper is the elucidation of the importance of the bank s credit decision making structure in ensuring overall effectiveness of loan guarantees in particular the government can use the guarantee as an instrument for credit inducement and for affecting the bank s decision making system i e its degree of centralization bias towards approval of loans and reliance on objective loan specific information

separating the likelihood and timing of bank failure abstract we use a split population survival time model to separate the determinants of bank failure from the factors influencing the survival time of failing banks basic indicators of a bank s condition such as capital troubled assets and net income are important in explaining the timing of bank failure however many of the other variables typically included in bank failure models such as measures of bank liquidity are not associated with the time to failure the results also suggest that the closure of large banks is not delayed relative to the closure of small banks

how consumer price subsidies affect nutrition summary we study the effect of an exogenous increase in food grain subsidy from a program targeting the poor in rural india and find that the increase in income resulting from the subsidy increased consumption of the subsidized grains and certain more expensive sources of nutrition lowered consumption of coarse grains the cheaper yet unsubsidized staple food and increased expenditures on nonfood items but had no effect on nutrition in poor households estimates of the price effect of the subsidy on nutrition are also negligible the price subsidy increased consumption of wheat and rice and lowered consumption of coarse grains

dormancy risk and expected profits of consumer loans abstract a bank that lends money to a household faces two types of risk frequently mentioned is the risk of default seldom referred to is the risk of an early redemption of the loan leading to dormancy in this paper we model the transition of consumer loans from an active to a dormant state to this end we use data on 4786 individuals who were granted credit by a swedish lending institution between september 1993 and august 1995 and estimate a semi parametric duration model we analyze the factors that determine the time to maturity on consumer loans and investigate the ability of the model to match the maturities observed in the data moreover we derive the distribution of conditional expected durations of loans and show how a loan application can be evaluated by calculating its expected profit