x efficiency in australian banking an empirical investigation this paper empirically investigates the x eaciency technical and allocative in australian banks a non parametric method of data envelopment analysis dea has been used to arrive at the eaciency scores banks in this sample were found to have low levels of overall eaciency compared with the banks in the european countries and in the us the results indicate that as a source of overall ineaciency the technical component was more important than the allocative component thus the ineaciency in australian banks can be attributed to wasting of inputs technical ineaciency rather than choosing the incorrect input combinations allocative ineaciency domestic banks were found to be more eacient than foreign owned banks the study has important implications such as guiding the government policy regarding deregulation and mergers since the study pinpoints the sources of ineaciency it would also help banks with strategic planning 2001 elsevier science b v all rights reserved

exchange rate effects of financial regulations abstract in this paper we analyze the effects of financial constraints on the exchange rate through the portfolio balance channel we use a sharp policy discontinuity within the colombian financial system to empirically test for the portfolio balance channel using high frequency data during the period of 2004 2015 our findings suggest that the effects on the exchange rate are short lived and significant only when banking constraints are binding to understand the mechanism behind this result we construct a tractable two period general equilibrium model in which banking limits on foreign holdings inhibit capital flows when these limits bind departures from the uncovered interest rate parity enable sterilized foreign exchange interventions to influence the exchange rate

has regulatory reform had any impact on bank efficiency in indonesia a two stage analysis abstractmore than a decade following the severe economic crisis 1997 indonesia has undergone major regulatory changes in its banking industry this article examines the impact of these regulatory changes on the relative technical efficiency te of the indonesian banking industry employing data envelopment analysis dea and censored tobit regression model additionally the bootstrap approach of simar and wilson is employed to provide statistical properties to the dea efficiency score the findings show that the industry on average is inefficient over the period of analysis also state owned and foreign owned banks are found to be more efficient than any other group of banks finally the impact of regulatory reforms is generally positive and statistically significant

economic liberalization and sources of productivity growth in indonesian banks is it efficiency improvement or technological progress abstractthis article investigates the sources of productivity growth in the indonesian banking sector during 23 years period from 1993 to 2015 the industry has gone through several episodes of policy reforms starting from the radical deregulation in the late 1980s the restructuring period following the 1997 asian financial crisis the consolidation period in the mid 2000s to the economic expansion in the 2010s using panel data of 98 commercial banks we explore productivity growth using malmquist indices complemented with bootstrapping technique to provide measures of the statistical precision of the results the malmquist index measures total factor productivity efficiency change and technological change results show that productivity improves moderately and appears to be less volatile towards the end of the period furthermore efficiency change tends to be the main source of productivity improvement rather than technological change

using asset prices to measure the cost of business cycles we measure the cost of consumption fluctuations using an approach that does not require the specification of preferences and instead uses asset prices we measure the marginal cost of consumption fluctuations the per unit benefit of a marginal reduction in consumption fluctuations expressed as a percentage of lifetime consumption we find that the gains from eliminating all consumption uncertainty are very large however for consumption fluctuations corresponding to business cycle frequencies we estimate the marginal cost to be between 0 08 percent and 0 49 percent of lifetime consumption

financial globalization financial crises and contagion abstract two observations suggest that financial globalization played an important role in the recent financial crisis first more than half of the rise in net borrowing of the u s non financial sectors since the mid 1980s has been financed by foreign lending second the collapse of the u s housing and mortgage backed securities markets had worldwide effects on financial institutions and asset markets using an open economy model where financial intermediaries play a central role we show that financial integration leads to a sharp rise in net credit in the most financially developed country and to large asset price spillovers of country specific shocks to bank capital the impacts of these shocks on asset prices are amplified by bank capital requirements based on mark to market

a simple general equilibrium model of large excess reserves abstract in a general equilibrium macroeconomic model with a banking system that can hold large excess reserves and is subject to possibly binding capital constraints i study how the quantity of government provided monetary assets is related to the price level in steady state when the central bank does not pay interest on reserves the price level moves one for one with the monetary base if instead the central bank can pay interest on reserves at market rates the price level can decouple from the quantity of monetary assets in the economy a larger monetary base need not imply a higher price level however for large enough levels of reserves the capital constraint binds and the tight link between money and prices reemerges

inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

on the firm level implications of the bank lending channel of monetary policy abstract standard models of the bank lending channel are unable to yield predictions on the differential impact of monetary policy shocks over heterogeneous borrowers this inability has made researchers doubt about the role played by bank credit as a transmission mechanism of monetary policy moreover it has made them reject those models in favor of the balance sheet channel as a transmission mechanism in this paper we show that an augmented version of the bank lending channel that allows for firm heterogeneity but without any role for firms balance sheets reproduces well the dynamics of firm level data our contribution is to show that it is not clear that the bank lending channel should be rejected in favor of alternative theories on the basis of its inability to reproduce firm level data thus there is additional room for econometric tests that can provide support to the bank lending channel

some models for estimating technical and scale inefficiencies in data envelopment analysis in management contexts mathematical programming is usually used to evaluate a collection of possible alternative courses of action en route to selecting one which is best in this capacity mathematical programming serves as a planning aid to management data envelopment analysis reverses this role and employs mathematical programming to obtain ex post facto evaluations of the relative efficiency of management accomplishments however they may have been planned or executed mathematical programming is thereby extended for use as a tool for control and evaluation of past accomplishments as well as a tool to aid in planning future activities the ccr ratio form introduced by charnes cooper and rhodes as part of their data envelopment analysis approach comprehends both technical and scale inefficiencies via the optimal value of the ratio form as obtained directly from the data without requiring a priori specification of weights and or explicit delineation of assumed functional forms of relations between inputs and outputs a separation into technical and scale efficiencies is accomplished by the methods developed in this paper without altering the latter conditions for use of dea directly on observational data technical inefficiencies are identified with failures to achieve best possible output levels and or usage of excessive amounts of inputs methods for identifying and correcting the magnitudes of these inefficiencies as supplied in prior work are illustrated in the present paper a new separate variable is introduced which makes it possible to determine whether operations were conducted in regions of increasing constant or decreasing returns to scale in multiple input and multiple output situations the results are discussed and related not only to classical single output economics but also to more modern versions of economics which are identified with contestable market theories

bank capital and the macroeconomy policy considerations we develop a macroeconomic model in which the balance sheet liquidity condition of financial institutions plays an important role in the determination of asset prices and economic activity the financial intermediaries in our model are required to make investment commitments before a complete resolution of idiosyncratic funding risk that can be addressed only by costly refinancing forcing them to behave in a risk averse manner the model shows that the balance sheet condition of intermediaries can drive asset values away from their fundamentals causing aggregate investment and output to respond to shocks to intermediaries we use this model to evaluate several public policies designed to address balance sheet problems at financial institutions with regard to short run policies we find that capital injections conditioned upon voluntary recapitalization can be a more effective tool than direct lending asset purchases with regard to long run policies we demonstrate that higher capital requirements can have sizable short run effects on economic activity and that a long transition period helps avoid undesirable side effects finally we show that the mariginal effects of policies can be larger during crises because of the nonlinear interactions between some financial frictions and policy actions

deposit insurance and money market freezes in the presence of deposit insurance a rise in counterparty risk may cause a freeze in interbank money markets we show this in a general equilibrium model with regionally segmented bank based retail financial markets in which money markets facilitate the reallocation of funds across banks from different regions counterparty risk creates an asymmetry between banks in savings rich regions which remain marginally financed by the abundant regional insured deposits and in savings poor regions which have to pay large spreads in money markets this asymmetry distorts the aggregate allocation of credit and in the presence of demand externalities can cause large output losses

regulations and productivity growth in banking evidence from transition economies this paper examines the relationship between the regulatory and supervision framework and the productivity of banks in 22 countries over the period 1999 2009 we follow a semiparametric two step approach that combines malmquist index estimates with bootstrap regressions the results indicate that regulations and incentives that promote private monitoring pmon have a positive impact on productivity restrictions on banks activities relating to their involvement in securities insurance real estate and ownership of nonfinancial firms also have a positive impact regulations relating to the first and second pillars of basel ii namely capital requirements capr and official supervisory power spr do not have in general a statistically significant impact on productivity over the study period although they appear to gain in importance following the onset of the financial crisis in 2007 the latter finding indicates that stringent capital and supervisory standards have positive productivity effects when financial pressures peak our results are robust when controlling for various country specific features and alternative estimation approaches

evaluation of stock allocation policies in a divergent inventory system with shipment consolidation in this paper we consider a one warehouse n retailer inventory system characterized by access to real time point of sale data and a time based dispatching and shipment consolidation policy at the warehouse more precisely inventory is reviewed continuously while a consolidated shipment for example a truck to all retailers is dispatched from the warehouse at regular time intervals the focus is on investigating the cost benefits of using state dependent myopic allocation policies instead of a simple fcfs first come first serve rule to allocate shipped goods to the retailers the analysis aims to shed some light on when if ever fcfs is a reasonable policy to use in this type of system the fcfs allocations of items to retailers are determined by the sequence in which retailer orders or equivalently customer demands arrive to the warehouse applying the myopic policy enables the warehouse to postpone the allocation decision to the moment of shipment from the warehouse or the moments of delivery to the different retailers and to base it on the inventory information available at those times the myopic allocation method we study is often used in the literature on periodic review systems

the comparative efficiency performance of small and large us commercial banks in the pre and post deregulation eras the purposes of this paper are twofold first to employ a flexible non parametric approach to contrast the productive efficiency of a sample of small and large banks in order to examine the relationship between size and productive performance in the banking industry second to investigate whether the relative efficiency performance of small and large banks has changed following the changes in the banking environment in the 1980s and to contrast the rate of technological change achieved by these two groups of banks over this time period the findings based on group specific frontiers suggest that in the pre deregulation environment small banks were more efficient than the large banks while in the deregulated environment small and large banks were equally efficient moreover the dispersion in the efficiency measures of the small banks is found to have increased substantially while that of the large banks changed little over the sample period

money and growth an alternative approach this paper takes an alternative approach to the topic of money and growth by developing a model in which the effects of sustained capital accumulation on an evolving system of payments in addition to the conventional effects of sustained inflation on growth are examined while the effects of inflation on growth are small the effects of growth on the monetary system are substantial the results are consistent with ideas about money and growth contained in work that predates that of james tobin and miguel sidrauski as well as with evidence that money and asset demands vary systematically within economies as they develop copyright 1994 by american economic association

exact evaluation of batch ordering inventory policies in two echelon supply chains with periodic review this paper studies a two echelon supply chain with stochastic and discrete consumer demand batch order quantities periodic inventory review and deterministic transportation times reorder point policies manage inventories at every location average inventory backorders and fill rates are evaluated exactly for each location safety stock is evaluated exactly at the lower echelon and a good approximation is detailed for the upper echelon numerical data are presented to demonstrate the model s utility it is found that system costs generally increase substantially if the upper echelon is restricted to carry no inventory of if the upper echelon is required to provide a high fill rate in many cases it is optimal to set the upper echelon s reorder point to yield near zero safety stock yet in some cases this simple heuristic can significantly increase supply chain operating costs finally policies selected under the assumption of continuous inventory review can perform poorly if implemented in an environment with periodic review

efficiency and risk in taiwan banking sbm super dea estimation in this study we adopt the two data envelopment analysis dea methods including banker charnes cooper bcc and slacks based measure sbm super efficiency to investigate whether a bank s technical efficiency index s results incorporating account risk and not incorporating account risk differ significantly the information is obtained from 43 taiwanese banks for the period 1998 to 2002 we also employ the nonradial and slacks based malmquist total factor productivity tfp index to measure the impact of productivity change on the panel data our empirical results from the dea approach are summarized as follows 1 loan quality factors have an impact on a bank s efficiency in general the bank with a higher degree of problem loans drops down its efficiency by incorporating account risk however the bank with a lower degree of problem loans increases its efficiency by incorporating account risk 2 super efficiency provides a good framework for ranking efficient units 3 based on the nonradial an

the impact of macroeconomic and regulatory factors on bank efficiency a non parametric analysis of hong kong s banking system abstract this paper assesses the relative technical efficiency of institutions operating in a market that has been significantly affected by environmental and market factors in recent years the hong kong banking system these environmental factors are specifically incorporated into the efficiency analysis using the innovative slacks based second stage tobit regression approach advocated by fried et al fried h o schmidt s s yaisawarng s 1999 incorporating the operating environment into a nonparametric measure of technical efficiency journal of productivity analysis 12 249 267 a further innovation is that we also employ tone s tone k 2001 a slacks based measure of efficiency in data envelopment analysis european journal of operational research 130 498 509 slacks based model sbm to conduct the data envelopment analysis dea in addition to the more traditional approach attributable to banker charnes and cooper bcc banker r d charnes a cooper w w 1984 some models for estimating technical and scale efficiencies in data envelopment analysis management science 30 1078 1092 the results indicate high levels of technical inefficiency for many institutions considerable variations in efficiency levels and trends across size groups and banking sectors and also differential impacts of environmental factors on different size groups and financial sectors surprisingly the accession of hong kong to the people s republic of china episodes of financial deregulation and the 1997 1998 south east asian crisis do not seem to have had a significant independent impact on relative efficiency however the results suggest that the impact of the last mentioned may have come via the adverse developments in the macroeconomy and in the housing market

the macroeconomics of modigliani miller abstract we examine the validity of a macroeconomic version of the modigliani miller theorem by this we mean that different capital structures can occur in equilibrium and that all of them are associated with the same allocation of commodities and the same welfare we develop a general equilibrium model with two production sectors risk averse households and financial intermediation by banks banks are funded by safe deposits and outside equity and monitor borrowers in lending two sets of equilibria emerge these sets differ with regard to the debt equity ratios of banks investment in risky technologies bank defaults and whether first best allocations are attained hence the macroeconomic version of the modigliani miller theorem fails to hold imposing minimum equity capital requirements however eliminates all inefficient equilibria and guarantees the validity of the macroeconomic version of the modigliani miller theorem

an incentive approach to banking regulation we examine the optimal design of a risk adjusted deposit insurance scheme when the regulator has less information than the bank about the inherent risk of the bank s assets adverse selection and when the regulator is unable to monitor the extent to which bank resources are being directed away from normal operations toward activities that lower asset quality moral hazard under a socially optimal insurance scheme 1 asset quality is below the first best level 2 higher quality banks have larger asset bases and face lower capital adequacy requirements than lower quality banks and 3 the probability of failure is equated across banks perihaps t he most troubling aspect of the current deposit insurance system is the distortions caused by the pervasive use of an insurance premium that is independent of risk the undesirable incentives that result when such a system is employed in a world with imperfect information have long been recognized in the literature of particular concern is the incentive banks have to increase the risk of their portfolio in order to maximize the value of the deposit insurance provided in some respects this problem is similar to the incentives generated by corporate debt however the solution to this problem may be different in a banking context because the creditors include the deposit insurer who has the power to regulate the banks conceivably regulation may be able to mitigate the informational problem at hand in this paper we examine some of the tradeoffs that arise in the design of a regulatory system for banks

foreign direct investment spillovers and technical efficiency in the indonesian pharmaceutical sector firm level evidence the spillovers of foreign direct investment fdi on domestic firms performances have been highly debated for many years this article contributes to this debate by analysing spillovers effects on technical efficiency of indonesian pharmaceutical sector using a unique unbalanced panel of highly disaggregated at five digit international standard industrial classification isic 210 firms over the period 1990 1995 1001 observations the stochastic production frontier spf and the data envelopment analysis dea based on malmquist productivity indices mpi have been used to test the spillovers effects of fdi on technical efficiency the empirical results from the spf show that foreign firms are more efficient than domestic competitors and the presence of the former increases the inefficiency of the latter similarly the results from the mpi demonstrate that fdi has a negative and significant impact on technical efficiency changes in domestic competitors but generate positive spillovers to domestic s

the welfare costs of self fulfilling bank runs we study the welfare implications of self fulfilling bank runs and liquidity require ments in a neoclassical growth model where banks facing long lasting possible runs can choose in any period a run proof asset portfolio in this framework runs distort banks insurance provision against idiosyncratic liquidity shocks and liquidity requirements re solve this distortion by forcing a credit tightening quantitatively the welfare costs of self fulfilling bank runs are equivalent to a constant consumption loss of up to 2 5 percent of u s gdp depending on fundamentals liquidity requirements might generate small welfare gains but also increase the welfare costs by up to 1 8 percent

the welfare cost of bank capital requirements abstract capital requirements are the cornerstone of modern bank regulation yet little is known about their welfare cost this paper measures this cost and finds that it is surprisingly large i present a simple framework which embeds the role of liquidity creating banks in an otherwise standard general equilibrium growth model a capital requirement limits the moral hazard on the part of banks that arises due to deposit insurance however this capital requirement is also costly because it reduces the ability of banks to create liquidity the key insight is that equilibrium asset returns reveal the strength of households preferences for liquidity and this allows for the derivation of a simple formula for the welfare cost of capital requirements that is a function of observable variables only using us data the welfare cost of current capital adequacy regulation is found to be equivalent to a permanent loss in consumption of between 0 1 and 1

microprudential regulation in a dynamic model of banking this paper studies the quantitative impact of microprudential bank regulations on bank lending and value metrics of efficiency and welfare in a dynamic model of banks that are financed by debt and equity undertake maturity transformation are exposed to credit and liquidity risks and face financing frictions we show that 1 there exists an inverted u shaped relationship between bank lending welfare and capital requirements 2 liquidity requirements unambiguously reduce lending efficiency and welfare and 3 resolution policies contingent on observed capital such as prompt corrective action dominate in efficiency and welfare terms noncontingent capital and liquidity requirements

a general equilibrium theory of banks capital structure abstract we develop a general equilibrium theory of the capital structures of banks and firms the liquidity services of bank deposits make deposits a cheaper source of funding than equity in equilibrium banks pass on part of this funding advantage in the form of lower interest rates to firms that borrow from them firms and banks choose their capital structures to balance the benefits of debt financing against the risk of costly default an increase in the equity of a firm makes its debt less risky and that in turn reduces the risk of the banks who lend to the firm hence there is some substitutability between firm and bank equity we find that firms have a comparative advantage in providing a buffer against systemic shocks whereas banks have a comparative advantage in providing a buffer against idiosyncratic shocks

evidence of bank market discipline in subordinated debenture yields 1983 1991 we examine debenture yields over the period 1983 1991 to evaluate the market s sensitivity to bank specific risks and conclude that investors have rationally reflected changes in the government s policy toward absorbing private losses in the event of a bank failure although this evidence does not establish that market discipline can effectively control banking firms it soundly rejects the hypothesis that investors cannot rationally differentiate among the risks undertaken by the major u s banking firms an increasingly important issue in the regulation of financial institutions concerns the extent to which market investors can will recognize and control the risks of banking firms although the banking act of 1933 replaced some private risk bearing with federal deposit insurance legislators were reluctant to displace market discipline very extensively flood 1992 by the early 1980s however u s regulators had come to protect virtually all bank liability holders from credit losses most visibly at large banks which were deemed too big to fail sprague 1986 o hara and shaw 1990 this extension of the government safety net largely reflects a skepticism on the part of regulators that normal market forces could adequately identify and control bank risks while u s regulators have recently shown an increased willingness to let some bank investors bear default losses an official suspicion of the efficacy of market discipline remains widespread by contrast some prominent academic economists argue that market investors in bank debentures could provide timely and effective control over banking firms risk exposures and that the social cost of supervising banks would be lower if regulators ceded greater

global banks financial shocks and international business cycles evidence from an estimated model this paper estimates a two country model with a global bank using us and euro area ea data and bayesian methods the estimated model matches key us and ea business cycle statistics empirically a model version with a bank capital requirement outperforms a structure without such a constraint a loan loss originating in one country triggers a global output reduction banking shocks matter more for ea macro variables than for us real activity during the great recession 2007 09 banking shocks accounted for about 20 of the fall in us and ea gdp and for more than half of the fall in ea investment and employment

chained credit contracts and financial accelerators sufficiently high net worth of financial intermediaries fis is considered a necessary condition for financial and macroeconomic stability in this paper we explore why the net worth of fis is important as compared to that of nonfinancial firms using a dynamic general equilibrium model in which both fis and nonfinancial firms rely on costly external debt we find that an exogenous disruption of the fis net worth has a greater aggregate impact than does the same sized disruption of the nonfinancial firms net worth the key reason is that the net worth of the fis in the united states is small jel e22 e44 g21

financial regulation and securitization evidence from subprime mortgage loans we examine the consequences of existing regulations on the quality of mortgage loans originations in the originate to distribute otd market the information asymmetries in the otd market can lead to moral hazard problems on the part of lenders we find using a plausibly exogenous source of variation in the ease of securitization that the quality of loan origination varies inversely with the amount of regulation more regulated lenders originate loans of worse quality we interpret this result as a possible evidence that the fragility of lightly regulated originators capital structure can mitigate moral hazard in addition we find that incentives which require mortgage brokers to have skin in the game and stronger risk management departments inside the bank partially alleviate the moral hazard problem in this setting finally having more lenders inside a mortgage pool is associated with higher quality loans suggesting that sharper relative performance evaluation made possible by more competition among contributing lenders can also mitigate the moral hazard problem to some extent overall our evidence suggests that market forces rather than regulation may have been more effective in mitigating moral hazard in the otd market the findings caution against policies that impose stricter lender regulations which fail to align lenders incentives with the investors of mortgage backed securities 2009 elsevier b v all rights reserved

bank assets liquidity and credit cycles abstract we study how bank collateral assets and their pledgeability affect the amplitude of credit cycles to this end we develop a tractable model where bankers intermediate funds between savers and borrowers if bankers default savers acquire the right to liquidate bankers assets however due to the vertically integrated structure of our credit economy savers anticipate that liquidating financial assets i e loans is conditional on borrowers being solvent on their debt obligations this friction limits the collateralization of bankers financial assets beyond that of real assets i e capital in this context increasing the pledgeability of financial assets eases more credit and reduces the spread between the loan and the deposit rate thus attenuating capital misallocation as it typically emerges in credit economies a la kiyotaki and moore 1997 we uncover a close connection between the collateralization of bank loans macroeconomic amplification and the degree of procyclicality of bank leverage

emerging problems with the basel capital accord regulatory capital arbitrage and related issues in recent years securitization and other financial innovations have provided unprecedented opportunities for banks to reduce substantially their regulatory capital requirements with little or no corresponding reduction in their overall economic risks a process termed regulatory capital arbitrage these methods are used routinely to lower the eaective risk based capital requirements against certain portfolios to levels well below the basel capital accord s nominal 8 total risk based capital standard this paper discusses the principal techniques used to undertake capital arbitrage and the diaculties faced by bank supervisors in attempting to deal with these activities under the current capital framework 2000 elsevier science b v all rights reserved

credit market competition and capital regulation market discipline for financial institutions can be imposed not only from the liability side as has often been stressed in the literature on the use of subordinated debt but also from the asset side this will be particularly true if good lending opportunities are in short supply so that banks have to compete for projects in such a setting borrowers may demand that banks commit to monitoring by requiring that they use some of their own capital in lending thus creating an asset market based incentive for banks to hold capital borrowers can also provide banks with incentives to monitor by allowing them to reap some of the benefits from the loans which accrue only if the loans are in fact paid off since borrowers do not fully internalize the cost of raising capital to the banks the level of capital demanded by market participants may be above the one chosen by a regulator even when capital is a relatively costly source of funds this implies that capital requirements may not be binding as recent evidence seems to indicate

asset pricing and the propagation of macroeconomic shocks this paper considers the implications of habit formation and financial frictions for the propagation of macroeconomic shocks in a model that is capable of matching asset pricing moments a short lived shock that destroys a small fraction of the economy s stock of pledgeable collateral generates a persistent recession a stock market crash and a flight to safety effect this novel mechanism creates a tight link between the asset pricing implications of macroeconomic models and their ability to propagate and amplify the effects of macroeconomic shocks

the role of bank capital in the propagation of shocks abstract the recent financial turmoil has underlined the importance of analyzing the link between banks balance sheets and economic activity we develop a dynamic stochastic general equilibrium model in which bank capital mitigates an agency problem between banks and their creditors as a result the capital position of banks affects their ability to attract loanable funds and therefore influences the business cycle through a bank capital channel of transmission we find that the bank capital channel greatly amplifies and propagates the effects of technology shocks on output investment and inflation moreover bank capital shocks create sizeable declines in output and investment

financial regulation and securitization evidence from subprime loans we examine the consequences of existing regulations on the quality of mortgage loans originations in the originate to distribute otd market the information asymmetries in the otd market can lead to moral hazard problems on the part of lenders we find using a plausibly exogenous source of variation in the ease of securitization that the quality of loan origination varies inversely with the amount of regulation more regulated lenders originate loans of worse quality we interpret this result as a possible evidence that the fragility of lightly regulated originators capital structure can mitigate moral hazard in addition we find that incentives which require mortgage brokers to have skin in the game and stronger risk management departments inside the bank partially alleviate the moral hazard problem in this setting finally having more lenders inside a mortgage pool is associated with higher quality loans suggesting that sharper relative performance evaluation made possible by more competition among contributing lenders can also mitigate the moral hazard problem to some extent overall our evidence suggests that market forces rather than regulation may have been more effective in mitigating moral hazard in the otd market the findings caution against policies that impose stricter lender regulations which fail to align lenders incentives with the investors of mortgage backed securities

real effects of bank capital regulations global evidence we examine the effect of the full set of bank capital regulations capital stringency on loan growth using bank level data for a maximum of 125 countries over the period 1998 2011 contrary to standard theoretical considerations we find that overall capital stringency only has a weak negative effect on loan growth in fact this effect is completely offset if banks hold moderately high levels of capital interestingly the components of capital stringency that have the strongest negative effect on loan growth are those related to the prevention of banks to use as capital borrowed funds and assets other than cash or government securities in contrast compliance with basel guidelines in using basel and credit risk weights has a much less potent effect on loan growth

pricing and timing of consolidated deliveries in the presence of an express alternative financial and environmental analysis shipment consolidation has been advocated by researchers and politicians as a means to reduce cost and improve environmental performance of logistics activities this paper investigates consolidated transport solutions with a common shipment frequency when a service provider designs such a solution for its customers she faces a trade off to have the most time sensitive customers join the consolidated solution the frequency must be high which makes it difficult to gather enough demand to reach the scale economies of the solution but by not having the most time sensitive customers join there will be less demand per time unit which also makes it difficult to reach the scale economies in this paper we investigate the service provider s pricing and timing problem and the environmental implications of the optimal policy the service provider is responsible for multiple customers transports and offers all customers two long term contracts at two different prices direct express delivery with immediate dispatch at full cost or consolidated delivery at a given frequency at a reduced cost it is shown that the optimal policy is largely driven by customer heterogeneity limited heterogeneity in customers costs leads to very different optimal policies compared to large heterogeneity we argue that the reason so many consolidation projects fail may be due to a strategic mismatch between heterogeneity and consolidation policy we also show that even if the consolidated solution is implemented it may lead to a larger environmental impact than direct deliveries due to inventory build up or a higher than optimal frequency of the consolidated transport c 2015 elsevier b v and association of european operational research societies euro within the international federation of operational research societies ifors all rights reserved

banks responses to deregulation profits technology and efficiency the deregulation of interest rates in the early 1980s raised bank funding costs and lowered profits in response banks raised fees for deposit services reduced branch operating costs and shifted to higher earning assets rates of return did not regain their prederegulation levels until the early 1990s our goal is to decompose the change in bank profits following deregulation into i intemal bank initiated adjustments to the new regulatory structure and ii external contemporaneous changes in banks business environment this decomposition will depend in part on the assumed competitive structure of the banking industry with perfect competition output and input prices are part of the external environment and banks responses are limited to changes in output and input quantities an alternative approach assumes imperfect competition where banks have some control over output prices deposit fees minimum balance requirements and interest rates on certain loans and output quantities and input prices comprise the external environment the altemative model is supported by the data using this model large banks but not smaller banks are found to have relied primarily on changing output prices and input use to mitigate and reverse the negative effects of deregulation on profits the adjustment to deregulation was essentially complete after four years following this additional changes in bank profitability during the late 1980s were primarily due to changes in banks business environment

approximations of dynamic multilocation production and inventory problems consider a central depot or plant which supplies several locations experiencing random demands orders are placed or production is initiated periodically by the depot the order arrives after a fixed lead time and is then allocated among the several locations the depot itself does not hold inventory the allocations are finally received at the demand points after another lag unfilled demand at each location is backordered linear costs are incurred at each location for holding inventory and for backorders also costs are assessed for orders placed by the depot the object is to minimize the expected total cost of the system over a finite number of time periods this system gives rise to a dynamic program with a state space of very large dimension we show that this model can be systematically approximated by a single location inventory problem all the qualitative and quantitative results for such problems can then be applied

bank capital requirements business cycle fluctuations and the basel accords a synthesis abstract in order to survey the mechanisms through which the introduction of basel ii bank capital requirements is likely to accentuate the procyclical tendencies of banking this paper brings together the theoretical literature on the bank capital channel of propagation of exogenous shocks and the literature on the regulatory framework of capital requirements under the basel accords we conclude that the theoretical models that revisit the bank capital channel under the new accord generally support the basel ii procyclicality hypothesis and that the magnitude of the procyclical effects essentially depends on i the composition of banks asset portfolios ii the approach adopted by banks to compute their minimum capital requirements iii the nature of the rating system used by banks iv the view adopted concerning how credit risk evolves through time v the capital buffers over the regulatory minimum held by the banking institutions vi the improvements in credit risk management and vii the supervisor and market intervention under basel ii the recent events and instability in financial markets all over the world have led the procyclicality issue to enter the agendas of several political international fora and some measures to mitigate procyclicality are being put forward the bank capital channel literature should now play an important role in evaluating their effectiveness

bank capital and credit market competition will competitive pressure lead to higher capital levels abstract this paper establishes a theoretical model to study the relationship between credit market competition and bank capital in the model bank capital can alleviate the debt overhang problem and the extent to which banks can enjoy the gain of holding capital is decreasing in the competitive pressure in the credit market it is shown that credit market competition reduces banks incentive to hold capital deposit insurance also induces banks to hold less capital in addition bank capital regulation is welfare improving and banks may voluntarily hold capital in excess of regulatory minimums

the impact of liberalization on the productive efficiency of indian commercial banks abstract we examine the productive efficiency of 70 indian commercial banks during the early stages 1986 1991 of the ongoing period of liberalization we use data envelopment analysis to calculate radial technical efficiency scores we then use stochastic frontier analysis to attribute variation in the calculated efficiency scores to three sources a temporal component an ownership component and a random noise component we find publicly owned indian banks to have been the most efficient followed by foreign owned banks and privately owned indian banks we also find a temporal improvement in the performance of foreign owned banks virtually no trend in the performance of privately owned indian banks and a temporal decline in the performance of publicly owned indian banks we attempt to explain these patterns in terms of the government s evolving regulatory policies

determinants of bank efficiency the case of brazil abstract this paper analyzes the efficiency of the brazilian banking sector over the post privatization period of 2000 2007 we employ a bayesian stochastic frontier approach which provides exact efficiency estimates and confidence intervals and thus allows an accurate comparison across institutions and bank groups the results suggest that large banks are the most cost and profit efficient supporting the concentration process observed in recent years foreign banks have achieved a good performance through either the establishment of new affiliates and the acquisition of local banks the remaining public banks have had improvements in cost efficiency but are relatively profit inefficient finally we observe a positive impact of capitalization on efficiency

optimization of order up to s policies for two level inventory systems with compound poisson demand abstract we consider a two level inventory system with one warehouse and n retailers leadtimes are constant and the retailers face different compound poisson demand processes all facilities apply order up to s replenishment policies we show how to evaluate holding and shortage costs exactly

joseph schumpeter lecture the great moderation the great panic and the great contraction this lecture examines the causes of the recent financial crisis and subsequent recession on the macroeconomic side the great moderation encouraged an overly optimistic assessment of risk combined with low interest rates reflecting both loose monetary policy and relatively high asian savings rates that encouraged a build up of excessive leverage in the banking system on the microeconomic side distorted incentives led to a concentration and mispricing of risk informational complexities associated with new financial assets and the interconnectedness of financial institutions then resulted in the closure of funding markets and a flight to safety when loan defaults rose unexpectedly the episode indicates the need to focus on agency and information problems between banks and their funders in addition to those between the banks and their borrowers it also suggests that the process of financial intermediation should play a more prominent role in macroeconomic models jel e32 e44 e52 e58 f32 g01 g21

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

monetary policy and asset prices with belief driven fluctuations abstract we present a heterogeneous agents new keynesian model subject to a cost channel of monetary policy transmission constant turnover between long time traders and newcomers in market activities combined with restricted trading opportunities introduces a feedback from the stock market to real activity making stock prices non redundant for the business cycle we show that strict inflation targeting can lead to equilibrium indeterminacy even if the policy rule satisfies the taylor principle a belief driven shock to stock price generates relative volatilities of key financial variables which are very close to what is observed in u s data this result hints to the possibility that the financial instability witnessed since the mid to late 1990s was the result of waves of rational exuberance and pessimism in financial markets our analysis suggests that a mild response to stock prices in the central bank s policy rule can restore equilibrium determinacy and therefore rule out non fundamental volatility

rising bank concentration abstract concentration of insured deposit funding among the top four commercial banks in the u s has risen from 15 in 1984 to 44 in 2018 a roughly three fold increase regulation has often been attributed as a factor in that increase the riegle neal interstate banking and branching efficiency act of 1994 removed many of the restrictions on opening bank branches across state lines we interpret the riegle neal act as lowering the cost of expanding a bank s funding base in this paper we build an industry equilibrium model in which banks endogenously climb a funding base ladder rising concentration occurs along a transition path between two steady states after branching costs decline

bank capital in the short and in the long run abstract how far should capital requirements be raised to ensure a resilient banking system without imposing undue costs on the real economy capital requirement increases make banks safer and are beneficial in the long run but entail transition costs because they reduce credit supply and aggregate demand on impact in the baseline scenario of a quantitative macro banking model 25 of the long run welfare gains are lost due to transitional costs the strength of monetary policy accommodation and bank riskiness are key determinants of the trade off between the short run costs and long run benefits from capital requirement changes

a prudential stable funding requirement and monetary policy in a small open economy abstract the basel iii net stable funding requirement introduced in january 2018 requires banks to use a minimum share of long term wholesale funding and deposits to fund their assets a similar regulation has been in place in new zealand since 2010 we introduce the stable funding requirement sfr into an open economy dsge model featuring a banking sector with richly specified liabilities and estimate the model for new zealand we then evaluate the impact of the new prudential instrument on monetary policy trade offs a higher steady state sfr level amplifies the effects of shocks to the spread on long term bond financing in the banking sector adding to macroeconomic volatility conditional on these shocks however the sfr plays a passive role in the transmission of all other shocks to the real economy hence in the overall picture the monetary policy trade off between inflation stabilisation and output stabilisation is only slightly worsened by the sfr we note that the trade off can be improved when monetary policy responds systematically to credit growth

risky bank lending and countercyclical capital buffers abstract we study the properties of a monetary economy with an essential role for risky bank lending banks issue deposits and lend to entrepreneurs because banks lending rate cannot be made contingent on aggregate shocks and because banks face capital adequacy regulations they require a capital buffer against loan losses capital adequacy regulations are modeled on the basel iii rules including a minimum capital adequacy ratio an endogenous capital conservation buffer and a countercyclical capital buffer we find that a countercyclical capital buffer leads to a significant increase in welfare it also reduces the need for countercyclical adjustments in policy interest rates

the procyclical effects of bank capital regulation we assess the procyclical effects of bank capital regulation in a dynamic equilibrium model of relationship lending in which banks are unable to access the equity markets every period banks anticipate that shocks to their earnings as well as the cyclical position of the economy can impair their capacity to lend in the future and as a precaution hold capital buffers we find that under cyclically varying risk based capital requirements e g basel ii banks hold larger buffers in expansions than in recessions yet these buffers are insufficient to prevent a significant contraction in the supply of credit at the arrival of a recession we show that cyclical adjustments in the confidence level underlying basel ii can reduce its procyclical effects on the supply of credit without compromising banks long run solvency targets

the recent boom bust cycle the relative contribution of capital flows credit supply and asset bubbles abstract we use an estimated open economy dsge model with financial frictions for the us and the rest of the world to evaluate various competing explanations about the recent boom bust cycle we find that the savings glut hypothesis is insufficient for explaining all aspects of the boom in the us relatively strong tfp growth and expansionary monetary policy are also not able to explain fully the volatility of corporate and in particular residential investment we identify bubbles in the stock and housing market as crucial concerning the downturn in 2008 2009 the fall in house prices and residential investment only plays a minor role mortgage defaults have more explanatory power especially in a specification of the model with a segregated equity market finally the bursting of the stock market bubble was at least as important in this recession as in 2001 because of various negative shocks hitting the economy at the same time in 2008 2009 and continued positive technology growth not only the real interest rate declined but inflation fell rapidly and left insufficient room for monetary policy to play a similar stabilising role as in previous recessions

coordinated replenishment strategies in inventory distribution systems in this paper we study the impact of coordinated replenishment and shipment in inventory distribution systems we analyze a system with multiple retailers and one outside supplier random demand occurs at each retailer and the supplier replenishes all the retailers in traditional inventory models each retailer orders directly from the supplier whenever the need arises we present a new centralized ordering policy that orders for all retailers simultaneously the new policy is equivalent to the introduction of a warehouse with no inventory that is in charge of the ordering allocation and distribution of inventory to the retailers under such a policy orders for some retailers may be postponed or expedited so that they can be batched with other retailers orders which results in savings in ordering and shipping costs in addition to the policy we propose for supplying inventory to the retailers we also consider three other policies that are based on these well known policies in the literature a can order policy b echelon inventory policy and c fixed replenishment interval policy furthermore we create a framework for simultaneously making inventory and transportation decisions by incorporating the transportation costs or limited truck capacities we numerically compare the performance of our proposed policy with these policies to identify the settings in which each policy would perform well

one warehouse multiretailer systems with centralized stock information we consider a distribution system with a central warehouse and multiple retailers the warehouse orders from an outside supplier and replenishes the retailers which in turn satisfy customer demand the retailers are nonidentical and their demand processes are independent compound poisson there are economies of scale in inventory replenishment which is controlled by an echelon stock batch transfer policy for the special case with simple poisson demand we develop an exact method for computing the long run average holding and backorder costs of the system based on this exact method we provide approximations for compound poisson demand numerical examples are used to illustrate the accuracy of the approximations we also present a numerical comparison between the average costs of a heuristic echelon stock policy and an existing lower bound on the average costs of all feasible policies

controlling inventories in divergent supply chains with advance order information this paper considers a generic one warehouse multiple retailer inventory system under continuous review where customers provide perfect advance order information more specifically each customer order entails a due date specifying when the customer wants the item delivered the information is perfect in the sense that a placed order cannot be revised with the intent of using the advance order information fully throughout the supply chain each installation replenishes its stock using order base stock policies see hariharan and zipkin 1995 as for stock allocation the presence of advance order information at the central warehouse raises important questions regarding when reservations should be made for different retailers i e how to make best use of the available temporal information to allocate items to retailers exact and approximate cost evaluation techniques are presented for the general case the general reservation policy as well as for the two special cases of reserving as early as possible the complete reservation policy and as late as possible the last minute allocation policy a numerical study illustrates the performance of the proposed heuristics and provides insights on the value of using advance order information in supply chain inventory control

collateralized borrowing and risk taking at low interest rates abstract empirical evidence suggests financial intermediaries increase risky investments when interest rates are low we develop a model consistent with this observation and ask whether the risks undertaken exceed the social optimum interest rate policy affects risk taking in the model through two opposing channels first low policy rates make riskier assets more attractive than safe bonds second low policy rates reduce the amount of safe bonds available for collateralized borrowing in interbank markets the calibrated model features excessive risk taking at the optimal policy however at low policy rates collateral constraints tighten and risk taking does not exceed the social optimum

a multiechelon inventory model with fixed replenishment intervals this paper develops a new model for studying multiechelon inventory systems with stochastic demand for the model we assume that each site in the system orders at preset times according to an order up to policy that delivery times are deterministic and that the demand processes are stochastic with independent increments we introduce a new scheme for allocating stock in short supply which we call virtual allocation and which permits significant tractability we exercise the model on a set of test problems for two echelon systems to get insight into the structure of good policies the primary findings are that both the central warehouse upper echelon and the retail sites lower echelon should hold safety stock but that most of the safety stock should be at the retail sites consequently the central warehouse will stock out with high probability furthermore we show that the virtual allocation rule is near optimal for the set of test problems

crises and capital requirements in banking we analyze a general equilibrium model in which there is both adverse selection of and moral hazard by banks the regulator can screen banks prior to giving them a licence audit them ex post to learn the success probability of their projects and impose capital adequacy requirements capital requirements combat moral hazard when the regulator has a strong screening reputation and they otherwise substitute for screening ability crises of confidence can occur only in the latter case and contrary to conventional wisdom the appropriate policy response may be to tighten capital requirements to improve the quality of surviving banks

financial intermediation and price level control abstract because currency and deposits are not perfect substitutes in all transactions there are simplified financial systems in which control of the supply of currency is sufficient to control the price level most important in a currency supply approach price level control does not imply control of financial intermediation thus price level goals never have to be weighed against the availability of credit to finance real activity

a note on banking efficiency in portugal new vs old banks following entry into the european community in 1986 portugal transformed rapidly its repressed banking system with deregulation the opening of borders the granting of new banking licenses and privatization in a more competitive banking system one would expect a priori an increase in operational efficiency this paper attempts to quantify the magnitude of efficiency gains over the years 1990 1995 moreover the paper documents the relative efficiency performance of new domestic banks not hampered by a legacy of inefficiency from the past they could operate nearer the efficiency frontier the case of portugal provides unique information on the joint effect of deregulation and the granting of new banking licenses on the change in operational efficiency of a previously repressed banking system

deregulation and productivity decline the case of spanish savings banks abstract during the 1980s many regulatory constraints limiting competition in spanish banking were relaxed or removed although deregulation came later to savings banks than to the rest of the banking sector two consequences of partial deregulation of savings banks have been a rapid growth in branching activity much of it geographically dispersed and a burst of merger activity in this paper we investigate productive efficiency and total factor productivity change in spanish savings banks over the 1986 1991 post deregulation period neither branching nor mergers provide an adequate explanation for the magnitude or the nature of the productivity decline we observe over the period

stock allocation in general multi echelon distribution systems with r s order up to policies in this paper we analyze stock allocation policies in general n echelon distribution systems where it is allowed to hold stock at all levels in the network the goal is to achieve differentiated target customer service levels fill rates various allocation rules and accompanying numerical methods that have already been developed for smaller networks are extended and compared in an extensive numerical experiment we conclude that the extension of balanced stock rationing see van der heijden 1996 is the most accurate method in particular in cases of relatively high imbalance if the imbalance is not too high the extension of consistent appropriate share rationing see de kok et al 1994 verrijdt and de kok 1996 performs good as well

financial structure and economic activity a recent development in economic science is the attempt to integrate monetary theory with the theory of general economic equilibrium this work takes as its starting point the idea that money cannot have value in standard general equilibrium models in these too much trade can be accomplished in centralized markets see robert clower 1969 1971 frank hahn 1973 or neil wallace 1980 thus to decentralize or break up the structure either exchange must be made costly or there must be restrictions on who can trade with whom and thus such choicetheoretic models offer the intriguing possibility that real and monetary phenomena can be understood as intimately related this paper continues in the relatively brief choice theoretic tradition motivated by real and monetary phenomena associated economic development and growth 1 to be noted first is simon kuznets seminal work on national income 1971 in a cross section study of fifty seven countries in 1958 kuznets shows that the share of the agricultural sector including forestry fishing and hunting in gross domestic product is inversely correlated with gross domestic product per capita the share of the industrial sector including transportation and communication is closely and positively associated with per capita product the share of the service sector tends to be positively but weakly associated with per capita product but the share of banking insurance and real estate shows a striking rise as one shifts from lowto higher income countries moreover the evidence suggests that the ratio of industrial prices to agricultural prices is perhaps lower the higher is per capita income though the evidence on relative prices for the service sector is inconsistent turning to long time series for thirteen developed and four less developed countries kuznets finds dramatic evidence for a decline of the agricultural sector and a rise in the industrial sector with per capita income at least in developed countries again results for the service sector are mixed but canada france and the united states are positive exceptions the share of a transport communication subsector rises quite consistently turning next to shares of sectors in the labor force kuznets finds both on a cross sectional and secular basis that all the above movements are at least mirrored and in many cases amplified in particular both components of the share of the service sector services and commerce rise substantially with gross domestic product per capita 2 to be noted second is the extensive work of raymond goldsmith on financial structure and financial intermediation for the united states goldsmith 1958 finds that the activity of intermediaries as measured by their share in national assets in tangible assets and in all claims has shown a substantial rise from 1860 to 1952 similarly goldsmith 1969 finds that the ratio of financial institutions assets to gross national product rises substantially from 1860 to 1963 in both developed and less developed countries including switzerland great britain the united states japan argentina and india related the number of households with savings accounts the number with life insurance policies and the number with stock ownership expressed as percents of the population are all low for less developed countries relative to developed countries and professor of economics carnegie mellon university graduate school of industrial administration schenley park pittsburgh pa 15213 this paper was motivated by a conversation with thomas sargent and has been aided by helpful comments from robert barro robert e lucas jr dan peled kenneth singleton and neil wallace financial support from the national science foundation the alfred p sloan foundation and the peterkin symposium on foundations of monetary policy and government finance at rice university and research assistance from pramerudee townsend are all gratefully acknowledged i alone assume full responsibility for any errors and for the views expressed here

economic reforms and productive capacity realisation in bangladesh an empirical analysis using firm level data from the bangladesh food manufacturing sector this paper examines the impact of economic reform on productive capacity realisation in the eighties the results suggest that although improvement occurred in the realisation of productive capacities after the implementation of economic reforms there is however room for significant further improvement in increasing output by realising the unrealised capacity

the demand for money in the united states evidence from cointegration tests this paper uses recent cointegration test procedures to investigate the underlying economic relationship between real money balances real income and interest rates for the united states unlike recent studies of money demand the authors analysis uses quarterly data spanning the period 1915 88 thus providing a sample encompassing a wide variety of economic experiences the evidence presented indicates that the broader m2 measure of money is the preferable measure with which to consider the long run effects of monetary policy copyright 1991 by ohio state university press

macroeconomic impact of basel iii evidence from a meta analysis abstract we present a meta analysis of the impact of higher capital requirements imposed by regulatory reforms on the macroeconomic activity basel iii the empirical evidence derived from a unique dataset of 48 primary studies indicates that there is a negative albeit moderate gdp effect in response to a change in the target capital ratio meta regression results suggest that the estimates reported in the literature tend to be systematically influenced by a selected set of study characteristics such as econometric specifications the authors affiliations and the underlying financial system finally we discuss the publication bias

exact and approximate evaluation of batch ordering policies for two level inventory systems we consider a two level inventory system with one warehouse and n identical retailers lead times transportation times are constant and the retailers face independent poisson demand in a previous paper we derived a recursive procedure for determining the policy costs for an average item in case of one for one replenishment policies in this paper we show how these results can be used for the exact or approximate evaluation of more general policies where both the retailers and the warehouse order in batches we compare our methods to the method recently suggested by a svoronos and p zipkin

evaluation of installation stock based r q policies fortwo level inventory systems with poisson demands we consider a two level inventory system with one warehouse and n retailers leadtimes transportation times are constant and the retailers face different poisson demand processes all facilities apply continuous review installation stock r q policies with different reorder points and batch quantities we show how to evaluate holding and shortage costs exactly in case of two retailers in case of more than two retailers we use the same methodology as an approximation when evaluating costs at a certain retailer the other retailers are then aggregated into a single retailer

financial deregulation and total factor productivity change an empirical study of turkish commercial banks abstract in january 1980 a new liberal economic policy was adopted in turkey to promote financial market development and increase the efficiency and productivity of the financial sector by fostering competition among banks as a result of this policy the turkish banking system witnessed a series of legal structural and institutional changes throughout the 1980s to enhance their competitive viability turkish banks responded by streamlining their operations and investing in new technology utilizing a dea type malmquist total factor productivity change index we examine productivity growth efficiency change and technical progress in turkish commercial banks during the deregulation of financial markets in turkey we found that all forms of turkish banks although in different magnitudes have recorded significant productivity gains driven mostly by efficiency increases rather than technical progress efficiency increases however were mostly owing to improved resource management practices rather than improved scales our results also indicate that private banks began to close their performance gap with public banks in the new environment