theories of bank behavior under capital regulation abstract this paper reviews academic studies of bank capital regulation in an effort to evaluate the intellectual foundation for the imposition of the basel i and basel ii systems of risk based capital requirements the theoretical literature yields general agreement about the immediate effects of capital requirements on bank lending and loan rates and the longer term impacts on bank ratios of equity to total or risk adjusted assets this literature produces highly mixed predictions however regarding the effects of capital regulation on asset risk and overall safety and soundness for the banking system as a whole thus the intellectual foundation for the present capital regulation regime is not particularly strong the mixed conclusions in the academic literature on banking certainly do not provide unqualified support for moving to an even more stringent and costly system of capital requirements these widely ambiguous results do suggest however that assessing the implications of capital regulation for balance sheet risk and monitoring effort in diverse banking systems is an important agenda for future theoretical research in the banking area

unbundling the biofuel promise querying the ability of liquid biofuels to deliver on socio economic policy expectations abstract while excitement around biofuels initially focused on finding a clean and secure alternative to fossil fuels many other expectations have subsequently been attached to the biofuel boom biofuels are not only expected to mitigate climate change or foster domestic energy security but also to generate employment provide opportunities to smallholders and support decentralized energy systems this paper interrogates the expectations attached to biofuels we begin by examining how policies in consumer and producer countries articulate a series of expectations for biofuels that are bundled with the promise of cleaner energy using the rationales behind these expectations to derive criteria for success we then review evidence from the published literature on biofuel outcomes against these criteria to assess whether the most prevalent assumptions have been met we find that policy expectations for biofuels are often expressed in narrow terms failing to capture important potential impacts for example focusing on new jobs in the formal sector rather than job quality or whether employment offsets livelihood costs associated with biofuel investments some expectations have proven elusive irrespective of the metrics employed for example using biofuels to improve energy access in remote rural areas the paper concludes by discussing implications for policy and practice

risk based capital requirements and bank portfolio risk abstract we construct a linear programming model and analyze the effectiveness of r b capital adequacy standards when bank deposits are fully insured we derive a set of optimal asset risk weights given a constraint in raising equity and using these weights the r b capital plan is an effective regulation mechanism without a constraint on equity maximum leverage restrictions and r b capital plans are mutually exclusive alternatives as we deviate from the optimal risk weights a combination of a leverage restriction and a r b equity ratio seems to be the more appropriate approach to controlling bank portfolio risk

the management of interest rate risk during the crisis evidence from italian banks abstract we use a unique dataset to analyze how italian banking groups managed their exposure to interest rate risk during the recent financial crisis first of all we document that on average the interest rate risk exposure measured by duration gap approach has been limited and well below the alert level enforced by regulators second our econometric results indicate a relation of substitutability between banks on balance sheet interest rate risk and their use of interest rate derivatives suggesting that banks used these two instruments to curb their overall interest rate risk exposure in case of an increase in interest rates furthermore we also find robust evidence of a negative correlation between banks interest rate risk and liquidity risk

do capital adequacy requirements reduce risks in banking abstract in a dynamic framework it is shown that capital adequacy rules may increase a bank s riskiness in addition to the standard negative effect of rents on risk attitudes of banks a further intertemporal effect has to be considered the intuition behind the result is that under binding capital requirements an additional unit of equity tomorrow is more valuable to a bank if raising equity is excessively costly the only possibility to increase equity tomorrow is to increase risk today

how biofuel policies backfire misguided goals inefficient mechanisms and political ecological blind spots abstract the development of an economically viable biofuel industry rests on strong state subsidies for production and processing creation of markets through government procurement fuel blending mandates price controls as well as foreign trade tariffs and quotas and multiple interventions in agricultural ecological and other regulations we use an approach grounded in agrarian political economy to critically analyze the literature on how biofuel policies interact with broader production trade and agro ecological processes we focus on policies involving the most prominent crops in the places where biofuel production has advanced the most i e usa brazil and the eu but also extend analysis to their relations with broader transformations in production commercial and even governance practices around the world we investigate the political and economic interests driving biofuel policies and how these set the terms in which state interventions and policies are conceived and implemented we find that these are not developed and implemented according to environmental or inclusive pro poor development purposes but according to state interests in energy security and its intersection with a tense alliance between corporate sectors rendering many policy mechanisms ineffective or even outright counterproductive to effectively facilitate more socially and environmentally sustainable energy production and agricultural practices

can regulators allow banks to set their own capital ratios abstract basel regulators have received widespread criticism for failing to prevent two credit crises that hit the u s over the last two decades nonetheless banks were considerably overcapitalized prior to the onset of the 2007 2009 subprime crisis compared to those which had undergone the 1990 1991 recession therefore if capital requirements were achieved prior to the subprime crisis how could the basel framework be blamed again for having accelerated if not caused another credit crunch we find that the answer to this question lies in the relationship between the capital ratio and the leverage ratio which is governed by risk weights categories determined by the basel regulation we show that changes to risk weight categories which affect the correlation pattern between both ratios are not reflected in the subprime crisis this minimizes the implication of the basel ii regulation in the crunch that succeeded its announcement in contrast to basel i we demonstrate that these dynamics are governed by a formula linking the two ratios together which derives from the sensitivity of the risk based capital ratio to a change in its risk weight s one implication of our work regarding the basel iii regulation consists in validating the newly established capital increments in a mathematical rather than heuristical approach

an arrgh chy the law and economics of pirate organization this article investigates the internal governance institutions of violent criminal enterprise by examining the law economics and organization of pirates to effectively organize their banditry pirates required mechanisms to prevent internal predation minimize crew conflict and maximize piratical profit pirates devised two institutions for this purpose first i analyze the system of piratical checks and balances crews used to constrain captain predation second i examine how pirates used democratic constitutions to minimize conflict and create piratical law and order pirate governance created sufficient order and cooperation to make pirates one of the most sophisticated and successful criminal organizations in history

terrorism and the invisible hook this article investigates and compares the root causes of transnational terrorism and piracy in order to accomplish this we construct a novel data set that catalogues terrorist activity and piracy over the years 1992 2008 paying particular attention to the arabian sea and indian ocean since 1991 these data are then merged with other information detailing the economic political and security posture of each organization during the same period so that we can examine the relationship between economic prosperity security terrorism and piracy the main conclusion is that terrorism is mostly unrelated to economic conditions while piracy responds to both economic payoffs and military deterrents

scaling up biofuels a critical look at expectations performance and governance this editorial is the introduction to a special issue of scaling up biofuels a critical look at expectations performance and governance which assesses biofuels contribution to sustainability governance and upscaling the issue aims to contribute to a more informed evidence based policy debate on the role of bioenergy for sustainable development it comprises six review papers that share a solutions oriented and policy focused approach towards the assessment of sustainability bioenergy production and consumption is not evaluated as an isolated industry or additionality instead it is assessed as an inherent component of the broader social ecological system and history of which it forms a part synthesizing available empirical evidence on performance and contextualizing the evidence in view of expectations and bioenergy governance in and over time the papers address the role of biofuels for climate mitigation their ability to deliver on socio economic policy expectations the actual performance in view of risk anticipation and mitigation the role of state policy considering sector development and sustainability and the ability of certification schemes to deliver on market conversion and quality the synthesis paper draws on the empirical findings to develop a set of sustainability conditions sine qua nons that have to be considered in processes of policy making and upscaling

how much does violence tax trade abstract we investigate the empirical effect of violence as compared to other trade impediments on trade flows our analysis is based on a panel data set with annual observations on 177 countries from 1968 to 1999 which brings together information from the rose data set the iterate data set for terrorist events and data sets of external and internal conflict we explore these data with traditional and theoretical gravity models we calculate that for a given country year the presence of terrorism together with internal and external conflict is equivalent to as much as a 30 tariff on trade this is larger than estimated tariff equivalent costs of border and language barriers and tariff equivalent reduction through generalized systems of preference and wto participation

counting the cost of the intifada consumption saving and political instability in israel in this paper we investigate some of the ways in whichshort term variations in the magnitude of politicalinstability can impact on macroeconomic performance takingthe example of israel since 1987 several indicators ofpolitical instability are found to have a significant impacton aggregate consumption and savings and explain a large partof poor israeli savings performance over recent years

reply to commentary on the special issue scaling up biofuels a critical look at expectations performance and governance abstract the special issue scaling up bioenergy identifies major policy expectations attached to biofuels production worldwide and it provides systematic reviews of actual biofuel performance and governance in these areas papers address the extent to which policy expectations related to climate change mitigation energy security rural livelihoods and risk mitigation have been achieved and the effectiveness of public and private governance in advancing sector sustainability building on these findings the synthesis paper asks what next for countries wishing to advance national biofuel programmes as one option for the necessary divestment from fossil fuels among other sine qua nons the special issue highlights the urgent need to downscale global energy demand and to stop treating biofuels as an isolated sector goldemberg et al 2018 query several aspects of our approach from research design data collection to our recommendation to apply the precautionary principle in research as well as policy making unfortunately goldemberg et al 2018 incorrectly portray our main argument moreover they claim bias in our approach and mistakes in our empirical evidence however without bringing forward an evenhanded critique of research philosophy methodology or referencing different empirical literature we fully stand behind our research philosophy and findings presented

accounting for banks capital regulation and risk taking this paper examines risk taking incentives in banks under dierent accounting regimes with capital regulation in the model the bank s decisions of capital issuance and investment policy are jointly determined given exogenous minimum capital requirement the bank is more likely to issue equity capital in excess of the minimum required level and implement less risky investment policy under either lower of cost ormarket accounting or fair value accounting than under historical cost accounting but fair value accounting may induce more risk taking compared to lower of cost or market accounting due to short term interest in the part of the bank however the disciplining role of lower of cost or market accounting may discourage bank s incentive to exert project discovery eort

pirational choice the economics of infamous pirate practices abstract this paper investigates the economics of infamous pirate practices two closely related economic theories the theory of signaling and the theory of reputation building explain these practices first i examine the pirate flag jolly roger which pirates used to signal their identity as unconstrained outlaws enabling them to take prizes without costly conflict second i consider how pirates combined heinous torture public displays of madness and published advertisement of their fiendishness to establish a reputation that prevented costly captive behaviors pirates infamous practices reduced their criminal enterprise s costs and increased its revenues enhancing the profitability of life on the account

macroeconomic consequences of terror theory and the case of israel abstract this paper analyzes the effect of terror on the economy terror endangers life such that the value of the future relative to the present is reduced hence due to a rise in terror activity investment goes down and in the long run income and consumption go down as well governments can offset terror by putting tax revenues into the production of security facing a tide in terror a government that acts optimally increases the proportion of output spent on defense but does not fully offset the tide thus when terror peaks the long run equilibrium with an optimizing government is of lower output and welfare next we show that this theory of terror and the economy helps to understand changes in trend and business cycle of the israeli economy the estimates show that terror has a large impact on the aggregate economy continued terror at the level of the death toll by about the same size as due to car accidents is expected to decrease annual consumption per capita by about 5 in 2004 had israel not suffered from terror during the last 3 years we estimate that the output per capita would have been 10 higher than it is today

limits to growth and sustainable development grappling with ecological realities abstract the paper has three main sections the first discusses the limits to growth debate of the 1970s identifying concern with three potential kinds of limits ecological limits to the physical scale of economic activity limits to the economic welfare to be derived from growth of economic activity and social limits to economic growth the second section explores the same issues through the sustainable development literature of the late 1980s and the 1990s to date the principal change over the 20 years concerned a period also framed by the stockholm environment conference and unced is far greater acceptance of the existence of threatening environmental damage and the need for active policy to address it no consensus has yet emerged however on the relationship between economic growth and welfare or ecological or social sustainability the third section indicates the scale of the task if global economic growth is to be reconciled with ecological sustainability and advocates a strategy for sustainability that principally involves differentiating between north and south and forging new economic relations between them

a reexamination of mean variance analysis of bank capital regulation abstract the mean variance framework has been used to analyze the effects of bank capital regulation on the asset and bankruptcy risk of insured utility maximizing banks this literature claims that more stringent capital regulation will increase asset risk and can increase bankruptcy risk these conclusions are notable because they are opposite to those obtained for insured value maximizing banks in this paper we show that the utility maximization literature does not support its conclusions regarding the effects of bank capital regulation because it has mischaracterized the bank s investment opportunity set by neglecting the option value of deposit insurance

bank holding company capital targets in the early 1990s the regulators versus the markets abstract several studies suggest that the credit crunch was due in large part to banks needs to raise their capital ratios the changes in bank capital ratios may have been in response to financial market or regulatory standards this study develops a model to test the relative impact of the regulators and the financial markets on bank holding companies bhcs capital ratios the results suggest that most bhcs were relatively satisfied with their capital ratios in 1989 however the regulators appear to have placed increased pressure on banks in 1990 1991 and 1992 especially bhcs that were subject to regulatory orders

lessons from first generation biofuels and implications for the sustainability appraisal of second generation biofuels the emergence of second generation 2g biofuels is widely seen as a sustainable response to the increasing controversy surrounding the first generation 1g yet sustainability credentials of 2g biofuels are also being questioned drawing on work in science and technology studies we argue that controversies help focus attention on key often value related questions that need to be posed to address broader societal concerns this paper examines lessons drawn from the 1g controversy to assess implications for the sustainability appraisal of 2g biofuels we present an overview of key 1g sustainability challenges assess their relevance for 2g and highlight the challenges for policy in managing the transition we address limitations of existing sustainability assessments by exploring where challenges might emerge across the whole system of bioenergy and the wider context of the social system in which bioenergy research and policy are done key lessons arising from 1g are potentially relevant to the sustainability appraisal of 2g biofuels depending on the particular circumstances or conditions under which 2g is introduced we conclude that sustainability challenges commonly categorised as either economic environmental or social are in reality more complexly interconnected so that an artificial separation of these categories is problematic

capital and risk in property liability insurance markets abstract this paper investigates the capital and portfolio risk decisions of property liability insurance firms a theoretical model based on option pricing theory is developed which predicts a positive relationship between insurer capital and risk as firms balance these two factors to achieve their desired overall insolvency risk the implications of the model are then tested empirically using a simultaneous equations methodology the results support the predictions of the model they also provide evidence that managerial incentives play a role in determining capital and risk in insurance markets the findings have significant implications for insurance solvency regulation

capital regulation heterogeneous monitoring costs and aggregate loan quality abstract this paper develops a banking sector framework with heterogeneous loan monitoring costs banks are exposed to the moral hazard behavior of borrowers and endogenously choose whether to monitor their loans to eliminate this exposure after analyzing an unregulated banking system we examine several cases in which regulatory capital requirements bind the notional loan supplies of various subsets of banks to gauge the impact of capital requirements we define loan quality in terms of either the ratio of monitored to total loans or the ratio of monitoring banks to total bank population under the assumption of a specific cross sectional distribution of banks our simulations show that the imposition of binding capital requirements on a previously unregulated banking system unambiguously increases the market loan rate and reduces aggregate lending but has an ambiguous effect on loan quality nevertheless once capital requirements are in place the simulations indicate that regulators can contribute to higher overall loan quality by toughening capital requirements

short term safety or long term failure empirical evidence of the impact of securitization on bank risk based on a sample of u s commercial banks from 2002 to 2012 this paper shows that bank loan securitization has a significant and positive impact on both z scores and the likelihood of bank failure indicating a short term risk reduction and a long term risk increase effect we also find disparate impacts between mortgage and non mortgage securitization loan sale activities are found to have a similar impact to securitization

why basel ii may need a leverage ratio restriction abstract we analyze regulatory capital requirements where the amount of required capital depends on the level of risk reported by the banks it is shown that if the supervisors have a limited ability to identify or to sanction dishonest banks an additional risk independent leverage ratio restriction may be necessary to induce truthful risk reporting the leverage ratio helps to offset the banks potential capital savings of understating their risks by i reducing banks put option value of limited liability ex ante and by ii increasing the banks net worth which in turn enhances the supervisors ability to sanction banks ex post

capital controls and bank risk abstract we analyze the effects of deposit guarantees on banks loan portfolio in contrast to earlier work we view bank loans net of evaluation and monitoring costs as non zero npv investments e g market securities deposit guarantees lead to inefficient investment and under plausible circumstances capital requirement increases lead banks to increase asset risk the risk increase reduces the beneficial effects of capital increases on the probability of default and on the economic efficiency of bank lending in some cases a tightening of the capital constraint even leads to an increase in the probability of default and financial instability and to higher expected costs of transferring assets to regulatory agencies increases in bank capital are not a substitute for risk monitoring and control and may imply an increased need for such surveillance

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

the macroeconomic consequences of terrorism abstract we perform an empirical investigation of the macroeconomic consequences of international terrorism and interactions with alternative forms of collective violence our analysis is based on a rich unbalanced panel data set with annual observations on 177 countries from 1968 to 2000 which brings together information from the penn world table data set the iterate data set for terrorist events and data sets of external and internal conflict we explore these data with cross sectional and panel growth regression analysis and a structural var model we find that on average the incidence of terrorism may have an economically significant negative effect on growth albeit one that is considerably smaller and less persistent than that associated with either external wars or internal conflict as well terrorism is associated with a redirection of economic activity away from investment spending and towards government spending however our investigation also suggests important differences both regarding the incidence and the economic consequences of terrorism among different sets of countries in oecd economies in particular terrorist incidents are considerably more frequent than in other nations but the negative influence of these incidents on growth is smaller

contracts and money why are contracts not fully indexed in a setting in which fully indexed contracts are feasible we find that when price level data are gathered with delay these contracts are not renegotiation proof the contracts that replace them entail a lower level of welfare for the parties to that contract they also imply that real variables respond to nominal shocks

optimal capacity in the banking sector and economic growth the paper investigates from the welfare and growth point of view the determination of the optimal capacity of the banking system for that purpose we consider an overlapping generation model with endogenous growth there is horizontal differentiation and imperfect competition in the banking sector macroeconomic shocks affect the return on capital and together with the expectations of depositors condition the stability of the banking sector we specify to what extent deposit insurance may reduce instability and increase the number of deposits welfare and growth we also characterize the conditions under which excess banking capacities may appear and how their reduction may improve welfare

market based governance for sustainability in value chains conditions for successful standard setting in the palm oil sector abstract current production and consumption patterns remain unsustainable global economic growth reaches planetary boundaries and puts increasing pressure on the world s natural resources whereas most economic actors just react to environmental pressures proactive market actors and other non governmental organisations e g greentec firms or fair trade organisations turn them into market opportunities or even create standards or certification schemes as promising problem solving market instruments in global value chains however how legitimate are standards and certification schemes developed by collaborating non state actors for sustainability in global value chains what are conditions for the success of those market based governance mechanisms this paper discusses the legitimacy and effectiveness of standard setting in the case of palm oil and focuses on the roundtable of sustainable palm oil rspo as the first global standard setting initiative in this respect conditions for the success of sustainability standard setting in global value chains are identified based on the concept of non state market driven nsmd governance based on literature review and expert interviews on standard setting results from the case study on rspo highlight strengths and weaknesses of its standard setting process in the light of increasing market demand for palm oil

unintended consequences of the market risk requirement in banking regulation abstract we analyze a bank that operates under the basel credit and market risk requirements and that maximizes its value through recapitalizations dividends and liquid asset investments according to our model the market risk requirement may postpone recapitalization and this way increase the bank s default probability we show that this is indeed the case if the expected return and volatility of the liquid asset portfolio are high i e then the market risk requirement raises the default probability of the bank in this sense the market risk requirement is inefficient

do no harm risk perceptions in national bioenergy policies and actual mitigation performance this paper investigates how risks are anticipated in national bioenergy policies and in which way related expectations that harms can be prevented or mitigated have actually been met the paper draws on the national biofuel policies of ten countries and the eu selected to represent a diverse sample of regions producers and consumers and pioneers and latecomers it proceeds in two steps firstly it identifies three risk categories most frequently mentioned across the investigated national policies secondly it conducts a systematic review of available empirical research about biofuels effects in these risk categories findings are discussed regarding the empirical conditions under which related expectations to do no harm have materialized or failed and concerning the challenges of risks perception and management in actual policies we observe issues of crop selection and inadequate sectoral governance of biofuels but also challenges of large scale modes of intensive production effective risk mitigation was often the result of risk adverse choices by contract farmers engaged in biofuels production national policy documents have insufficiently conceptualized do no harm concepts and strategies in place to address these performance issues while remaining silent on the particular risk governance and accountability framework that keeps track of actual developments commitments and responsibilities

sine qua nons of sustainable biofuels distilling implications of under performance for national biofuel programs biofuels have been promoted worldwide under the assumption that they can support several strategic policy goals while mitigating associated risks drawing on published evidence on performance contributing papers to this special section question assumptions commonly attributed to biofuels their carbon neutrality their positive effect on rural livelihoods and policymakers ability to effectively govern for sustainability this paper takes these findings as its starting point and asks what next for countries wishing to advance biofuels as one option for the necessary divestment from fossil fuels deriving recommendations for national biofuel programs from past performance is no easy task context complexity power dynamics and scaling pose significant challenges to achieving policy aims we are nevertheless able to distill a set of sine qua nons indispensables for sustainable biofuel governance from the evidence and change management literatures they are put forward not as recipes for success but minimum conditions and best bet approaches requiring testing deliberation and refinement perhaps the most fundamental sine qua non is to pursue options that downscale global demand as current levels of global energy consumption if only in the transport sector cannot be met by biomass derived agrofuels in a way that meets social and environmental sustainability goals

a review of social sustainability considerations among eu approved voluntary schemes for biofuels with implications for rural livelihoods the rapid expansion of biofuel production and consumption has raised concerns over the social and environmental sustainability of biofuel feedstock production processing and trade the european union eu has thus balanced its commitment to biofuels as one option for meeting its renewable energy targets with sustainability criteria for economic operators supplying biofuels to member states seven voluntary eu sustainability schemes were approved in july 2011 as a means to verify compliance while mandated sustainability criteria have a strong environmental focus a number of these voluntary schemes have social sustainability as a significant component of the requirements put forward for achieving certification as several of these voluntary schemes are incipient thereby limiting evidence on their effectiveness in practice this analysis is based on a comparative analysis of the substantive content or scope of these schemes and the likely procedural effectiveness of the same findings show that while some schemes have considerable coverage of social sustainability concerns poor coverage of some critical issues the presence of schemes lacking any social sustainability requirements and gaps in procedural rules are likely to undermine the likelihood that social sustainability is achieved through these schemes or the eu sustainability policies lending credibility to them