bank risk taking securitization supervision and low interest rates evidence from the euro area and the u s lending standards using a unique dataset of the euro area and the u s bank lending standards we find that low monetary policy short term interest rates soften standards for household and corporate loans this softening especially for mortgages is amplified by securitization activity weak supervision for bank capital and low monetary policy rates for an extended period conversely low long term interest rates do not soften lending standards finally countries with softer lending standards before the crisis related to negative taylor rule residuals experienced a worse economic performance afterward these results help shed light on the origins of the crisis and have important policy implications the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

long term contracting and multiple price systems this article examines product markets in which long term contracts and spot transactions coexist such markets are characterized by multiple price systems wherein adjustment to supply and demand shocks occurs through spot prices while contract prices are fixed or adjust slowly the authors derive the existence of contracts as well as the equilibrium fraction of spot trade in the framework of an optimizing model and analyze the effects of shocks on market equilibrium when some buyers and sellers locked in contractually the model is employed to interpret the change in the copper market from a multiple price system to one characterized solely by spot trade copyright 1992 by university of chicago press

three ethical roots of the economic crisis on sept 15 2008 dark monday the world witnessed a radical reshaping of wall street lehman brothers fell toward bankruptcy merrill lynch was sold to its rival bank of america and aig pleaded for 40 billion in government relief those calamities marched in step with a dismal parade including the us government takeover of fannie mae and freddie mac the bailout of bear stearns and the entire subprime debacle we rightly blame wall street leaders for bungling business decisions for misestimating risk and overloading banks with single strategy investments we now are living with the aftermath of these business mistakes but how about ethical mistakes were they too part of the crisis of course we need and certainly will get more robust regulation we have been reminded that banks are like utilities we must keep the lights on we must heat our homes the biggest banks cannot fail and that s why at least the utility like portion of banking will have to be regulated and regulated more firmly that s an important

sovereign stress and smes access to finance evidence from the ecb s safe survey abstract we study the effect of sovereign stress on smes capital structure using restricted access data from the european central bank we find that during the sovereign debt crisis and controlling for borrowers quality firms in stressed countries became more likely to be denied credit to be credit rationed and to face higher loan rates less creditworthy firms were not more likely to become credit constrained suggesting no flight to quality in lending we also find that in order to make up for the decline in bank credit firms in stressed countries began relying considerably more on retained earnings and government subsidies

toward efficiency in the crude oil market the official opec prices of crude oil before the collapse in the oil market in the mid 1980s can be interpreted as contract prices and analysed on the basis of the theory of futures or forward markets this paper uses the generalized method of moments estimation technique to test for efficiency in the relationship between the official prices and the ex post spot prices at the time of delivery efficiency is rejected for the sample period 1978 1985 as a whole but evidence is found of improvements over time further the gmm wald and hansen tests although asymptotically equivalent are shown to differ greatly when applied to a small sample of monthly oil price data

securitization a financing vehicle for all seasons securitization is considered to be one of the biggest financial innovations of the last century it is also regarded as both a catalyst and a solution to the 2008 financial crisis once a popular method of financing the mortgage and consumer credit markets aspects of the global securitization market are now struggling to revive in this paper i discuss the role that ethics played in securitization prior to the 2008 financial crisis and find that it is not an obvious story of moral failures but rather that it lies in more subtle elements of the financial system the ethics uncertainty role in the securitization story is one of flawed incentives and the shifting of responsibility for handling risk the role of securitization and the ethics of risk transfer have rarely been discussed explicitly in the literature the historical origins of securitization and lessons learned from previous flawed uses of the process are also provided i also detail the various global institutional reform proposals that have taken place moving forward it is crucial to understand the causes consequences and ethical implications of securitization in the financial crisis so as to help individuals and managers better assess risk align incentives and design appropriate policy responses

cross border banking credit access and the financial crisis abstract we study the sensitivity of credit supply to bank financial conditions in 16 emerging european countries before and during the financial crisis we use survey data on 10 701 applicant and non applicant firms that enable us to disentangle effects driven by positive and negative shocks to the banking system from demand shocks that may vary across lenders we find strong evidence that firms access to credit was affected by changes in the financial conditions of their banks during the crisis firms were more credit constrained if they were dealing with banks that experienced a decline in equity and tier 1 capital as well as losses on financial assets we also find that access to credit reflects the balance sheet conditions of foreign parent banks the effect of positive and negative shocks to a bank is greater for riskier firms and firms with fewer tangible assets

small and medium sized enterprise financing and securitization firm level evidence from the euro area this paper analyzes the impact of securitization on access to finance for small and medium sized enterprises smes in the euro area using firm level survey data on sme financing conditions we show that an increase in securitization issuance reduces the probability of smes facing credit constraints and decreases the costs of bank financing for nonconstrained firms our results reveal that in addition to the volume of securitization its type and quality matter for credit extension to smes the paper thus provides empirical support for recent initiatives to revive securitization in europe and for effective monetary policy transmission in the euro area jel d22 e44 e51 e58 g21

margin call using film to explore behavioural aspects of the financial crisis the aim of this article is to show how the critically acclaimed and award winning film margin call may be used in business ethics teaching set in a fictional investment bank at the dawn of the financial crisis the film zooms in on the motivations and decision making of people who had much to lose from the crash of the hitherto very profitable mortgage backed securities market the film offers rich material for analysis of behaviours that contributed to the crisis the article will set out topics for classroom discussion including the impact of incentives and power structures contextual factors that distance people from the consequences of their actions and considerations of how the banking industry may be transformed

when arm s length is too far relationship banking over the credit cycle we conduct face to face interviews with bank ceos to classify 397 banks across 21 countries as either relationship or transaction lenders we then use the geographic coordinates of these banks branches and of 14 100 businesses to analyze how the lending techniques of banks in the vicinity of firms are related to credit constraints at two contrasting points of the credit cycle we find that while relationship lending is not associated with credit constraints during a credit boom it alleviates such constraints during a downturn this positive role of relationship lending is stronger for small and opaque firms and in regions with a more severe economic downturn moreover our evidence suggests thatrelationship lending mitigates the impact of a downturn on firm growth and does not constitute evergreening of loans

supply shocks and price adjustment in the world oil market understanding the impacts of transitory oil supply shocks on world oil prices is crucial to the evaluation of the economic impacts of shocks and the design of policy responses to address those impacts this paper integrates short run and long run approaches to oil price determination with particular emphasis on the two price structure of the world oil market with coexisting short term spot prices and long term contract prices even transitory shocks are shown to exhibit persistence effects on long term prices some implications for econometric models of the relationship between spot and contract prices are discussed

cross country differences in the effects of oil shocks abstract we compare the macroeconomic consequences of several types of oil shocks across a set of industrialized countries that are structurally very diverse with respect to the role of oil and other forms of energy in the economy the results crucially depend on the underlying source of the oil price shift when a rise in oil prices is caused by increased global economic activity or a rise in oil specific demand almost all countries experience respectively a temporary increase and transitory decline of real gdp the role of oil and other forms of energy cannot explain the differences in the effects of both shocks across countries in contrast this role is very important to explain asymmetries in the effects of exogenous oil supply shocks whereas net oil and energy importing countries typically face a permanent fall in economic activity the impact is insignificant or even positive in net energy exporting countries in addition countries that improved their net energy position the most over time became less vulnerable to oil supply shocks relative to other countries

does csr reduce firm risk evidence from controversial industry sectors in this paper we examine the relation between corporate social responsibility csr and firm risk in controversial industry sectors we develop and test two competing hypotheses of risk reduction and window dressing employing an extensive u s sample during the 1991 2010 period from controversial industry firms such as alcohol tobacco gambling and others we find that csr engagement inversely affects firm risk after controlling for various firm characteristics to deal with endogeneity issue we adopt a system equation approach and difference regressions and continue to find that csr engagement of firms in controversial industry sectors negatively affects firm risk to examine the premise that firm risk is more of an issue for controversial firms we further examine the difference between non controversial and controversial firm samples and find that the effect of risk reduction through csr engagement is more economically and statistically significant in controversial industry firms than in non controversial industry firms these findings support the risk reduction hypothesis but not the window dressing hypothesis and the notion that the top management of u s firms in controversial industries is in general risk averse and that their csr engagement helps their risk management efforts

cyclicality of credit supply firm level evidence abstract we quantify fluctuations in bank loan supply in the time series by studying firms substitution between loans and bonds using firm level data any firm that raises new debt must have a positive demand for external funds conditional on the issuance of new debt we interpret firms switching from loans to bonds as a contraction in bank credit supply we find strong evidence of this substitution at times that are characterized by tight lending standards depressed aggregate lending poor bank performance and tight monetary policy we show that this substitution behavior has strong predictive power for bank borrowing and investments by small firms

the global financial crisis and the values of professionals in finance an empirical analysis the idea that the ethical values of professionals in finance pifs e g stockbrokers and fund managers have played a role in the global financial crisis gfc is widespread the crisis of ethics debate is important concerning one of the main policy challenges of our times but is based on popular lore and anecdotes rather than systematic evidence we analyze the self enhancement and self transcendence values of pifs vis a vis the general population and test for patterns of variation that are consistent with the idea of a crisis of values meaning patterns of variation that would implicate pifs values in the gfc employing pre crisis data allows for an unbiased assessment results reveal only minor differences in values between pifs and the general population too small to support the idea of a crisis of ethical values by objective standards extensive robustness checks confirm these findings sometimes actually revealing values differences counter to the crisis of ethical values idea we conclude that the financial system would not have fared better had we had a different breed of pifs rather situational forces can induce severe disregard for the welfare of others also in people with ordinary decent values hence if anything the gfc shows that the financial services industry has been providing an environment highly conducive to unethical behavior the practical implication is that fixes to the financial system can only come from improved regulatory design

oil supply disruptions and modelling methodologies the role of lp models abstract this paper has three main objectives first an argument is made that oil vulnerability is not a problem of the past but remains a significant concern for all oil consuming countries especially beyond 1990 second it is suggested that the severity of past disruptions can be attributed in part to physical and institutional constraints that prevented the oil market from reacting quickly to what were relatively minor supply disruptions the currently changing structure of the world oil market in particular the evolving sales agreements under which an increasing percentage of world oil is traded and the vertical integration of major opec members into areas such as refining could decrease the ability of the market to adjust to future disruptions third it is suggested that linear programming lp models offer unique capabilities in assessing the degree to which the world and domestic oil markets could adjust to short term supply disruptions given constraints on transport trade and refining possibilities imposed by the physical structures of those market sectors or by control of those sectors by increasingly powerful producing countries the assessment of this flexibility will help pinpoint areas needing attention and also contribute indirectly to the evaluation of short run demand elasticities for world oil the us department of energy s petroleum allocation pal model is used as an example of one lp model that can address such issues

contracting and price adjustment in commodity markets evidence from copper and oil this paper analyzes price adjustment in markets where trade takes place through both spot market and long term contract transactions the authors develop a model illustrating the role of the resulting two price system in describing price adjustment to transitory shocks persistence effects of these shocks on prices depends on inter alia the fraction of trades carried out through contracts the model is tested on price data from the world copper and crude oil markets econometric tests of the model provide support for the hypothesis that the increase in the importance of spot markets in copper and oil is associated with an increase in the speed of adjustment of spot prices to supply and demand disturbances copyright 1989 by mit press

determinants of official opec crude prices the hypothesis of this paper is that crude oil like any other unfinished commodity is valued for the products derived from it the purpose is to offer an empirical explanation for changes in the crude price charged by the members of opec the model results show that the market clearing prices reported to prevail for petroleum products on the principal petroleum spot market at rotterdam are the primary determinants of changes in official crude prices a systematic relationship between offical and spot prices is argued to have prevailed since 1974 an appendix clarifies five types of data required for the model 13 references 4 tables

inventories and sticky prices more on the microfoundations of macroeconomics the role of inventories in making prices sticky is studied by analyzing a dynamic linear quadratic model of a monopoly firm facing stochastic demand but able to store its finished goods in inventory it is shown that in contrast to the usual presumption firms that exhibit the smallest output responses to demand fluctuations may also exhibit the smallest price fluctuations specifically firms which have very flexible inventory storage facilities or are subjected to very transitory demand shocks will rely on inventories as buffers and will change neither production nor price very much on the other hand firms which have very inflexible storage facilities or whose demand shocks are quite permanent will display large swings in both price and output the standard assumption about inventory carrying costs that has been used in the literature that they are linear is shown to imply that production is impervious to fluctuations in demand it is also established that prices may respond more strongly to positive demand shocks than to negative ones if it is impossible to hold negative inventories i e to have unfilled orders the model offers an explanation for stickiness in relative prices however under certain circumstances it may help explain the persistence of inflation this abstract was borrowed from another version of this item