Essays on Bank Risk

This PhD Thesis is composed of three chapters, each discussing a specific type of risk that banks face. The first chapter talks about Systemic Risk and how banks get exposed to it through the Interbank Funding Market. Exposures in the said market have Systemic Risk implications because the market creates linkages, where the failure of one party can affect the others in the market. By showing that CDS Spreads, as bank risk indicators, are positively related to their Net Interbank Funding Market Exposures, this chapter establishes the above Systemic Risk Implications of Interbank Funding. Meanwhile, the second chapter discusses how banks may handle Illiquidity Risk, defined as the possibility of having sudden funding needs. Illiquidity Risk is embodied in this chapter through Loan Commitments as they oblige banks to lend to its clients, up to a certain amount of funds at any time. This chapter points out that using Securitization as funding facility, could allow the banks to manage this Illiquidity Risk. To make this case, this chapter demonstrates empirically that banks having an increase in Loan Commitments, may experience an increase in risk profile but such can be offset by an accompanying increase in Securitization Activity. Lastly, the third chapter focuses on how banks manage Credit Risk also through Securitization. Securitization has a Credit Risk management property by allowing the offloading of risk. This chapter investigates how banks use such property by looking at the effect of securitization on the banks’ loan portfolios and overall risk and returns. The findings are that securitization is positively related to loan portfolio size and the portfolio share of risky loans, which translates to higher risk and returns. Thus, this chapter points out that Credit Risk management through Securitization may be have been done towards higher risk taking for high returns.

Bank Governance and the Bail-in in the EU. A Law & Finance analysis on the role of bail-inable creditors

This dissertation assesses the impact of the EU Directive on Bank Recovery and Resolution (BRRD) on bank corporate governance and investigates a fundamental question. Can the resolution framework for distressed banks enhance the quality of banks’ decision making? According to the Directive, the Resolution Authority can impose losses on bank’s creditors in case of distress through a bail-in. Bail-inable creditors become residual claimants of the bank, contingent on its distress. The first part of the dissertation establishes an analytical framework for bank governance, starting from the problem of what can be defined as “good governance” in banking. The dissertation hypothesizes that governance regulation represents a necessary link between the incentives of corporate constituencies and the goals of substantive regulation. The second part builds upon this analytical framework and carries out a positive analysis encompassing three channels of debt governance; namely, price internalisation of risk; contractual arrangements and the discrete impact of different type of creditors. The existence of a resolution framework should incentivise bail-inable creditors to better discipline the borrowing bank; yet, the design of both the capital and resolution regulation largely foreclose such possibility to creditors. Against this backdrop, the third part of the dissertation moves to normative considerations. The approach to this normative part combines and complements the study of cash flow rights of the management with the study of the voting rights to bail-inable creditors. On the cash flow side, the dissertation proposes to include bail-inable debt as part of the variable remuneration for bank risk-takers. On the voting right, the proposal is to grant a limited basket of ex-ante governance rights to bail-inable creditors. Such a unified approach is rather uncommon in the literature, where cash flow rights and voting rights are often approached separately whereas those complement each other in the dissertation.

Development of musculoskeletal models for the design and the pre-clinical validation of hip resurfacing prosthesis

Background. The surgical treatment of dysfunctional hips is a severe condition for the patient and a costly therapy for the public health. Hip resurfacing techniques seem to hold the promise of various advantages over traditional THR, with particular attention to young and active patients. Although the lesson provided in the past by many branches of engineering is that success in designing competitive products can be achieved only by predicting the possible scenario of failure, to date the understanding of the implant quality is poorly pre-clinically addressed. Thus revision is the only delayed and reliable end point for assessment. The aim of the present work was to model the musculoskeletal system so as to develop a protocol for predicting failure of hip resurfacing prosthesis. Methods. Preliminary studies validated the technique for the generation of subject specific finite element (FE) models of long bones from Computed Thomography data. The proposed protocol consisted in the numerical analysis of the prosthesis biomechanics by deterministic and statistic studies so as to assess the risk of biomechanical failure on the different operative conditions the implant might face in a population of interest during various activities of daily living. Physiological conditions were defined including the variability of the anatomy, bone densitometry, surgery uncertainties and published boundary conditions at the hip. The protocol was tested by analysing a successful design on the market and a new prototype of a resurfacing prosthesis. Results. The intrinsic accuracy of models on bone stress predictions (RMSE < 10%) was aligned to the current state of the art in this field. The accuracy of prediction on the bone-prosthesis contact mechanics was also excellent (< 0.001 mm). The sensitivity of models prediction to uncertainties on modelling parameter was found below 8.4%. The analysis of the successful design resulted in a very good agreement with published retrospective studies. The geometry optimisation of the new prototype lead to a final design with a low risk of failure. The statistical analysis confirmed the minimal risk of the optimised design over the entire population of interest. The performances of the optimised design showed a significant improvement with respect to the first prototype (+35%). Limitations. On the authors opinion the major limitation of this study is on boundary conditions. The muscular forces and the hip joint reaction were derived from the few data available in the literature, which can be considered significant but hardly representative of the entire variability of boundary conditions the implant might face over the patients population. This moved the focus of the research on modelling the musculoskeletal system; the ongoing activity is to develop subject-specific musculoskeletal models of the lower limb from medical images. Conclusions. The developed protocol was able to accurately predict known clinical outcomes when applied to a well-established device and, to support the design optimisation phase providing important information on critical characteristics of the patients when applied to a new prosthesis. The presented approach does have a relevant generality that would allow the extension of the protocol to a large set of orthopaedic scenarios with minor changes. Hence, a failure mode analysis criterion can be considered a suitable tool in developing new orthopaedic devices.

"Water users must be efficient producers". Women's access to and use of land in Chókwè irrigation scheme, Mozambique

The irrigation scheme Eduardo Mondlane, situated in Chókwè District - in the Southern part of the Gaza province and within the Limpopo River Basin - is the largest in the country, covering approximately 30,000 hectares of land. Built by the Portuguese colonial administration in the 1950s to exploit the agricultural potential of the area through cash-cropping, after Independence it became one of Frelimo’s flagship projects aiming at the “socialization of the countryside” and at agricultural economic development through the creation of a state farm and of several cooperatives. The failure of Frelimo’s economic reforms, several infrastructural constraints and local farmers resistance to collective forms of production led to scheme to a state of severe degradation aggravated by the floods of the year 2000. A project of technical rehabilitation initiated after the floods is currently accompanied by a strong “efficiency” discourse from the managing institution that strongly opposes the use of irrigated land for subsistence agriculture, historically a major livelihood strategy for smallfarmers, particularly for women. In fact, the area has been characterized, since the end of the XIX century, by a stable pattern of male migration towards South African mines, that has resulted in an a steady increase of women-headed households (both de jure and de facto). The relationship between land reform, agricultural development, poverty alleviation and gender equality in Southern Africa is long debated in academic literature. Within this debate, the role of agricultural activities in irrigation schemes is particularly interesting considering that, in a drought-prone area, having access to water for irrigation means increased possibilities of improving food and livelihood security, and income levels. In the case of Chókwè, local governments institutions are endorsing the development of commercial agriculture through initiatives such as partnerships with international cooperation agencies or joint-ventures with private investors. While these business models can sometimes lead to positive outcomes in terms of poverty alleviation, it is important to recognize that decentralization and neoliberal reforms occur in the context of financial and political crisis of the State that lacks the resources to efficiently manage infrastructures such as irrigation systems. This kind of institutional and economic reforms risk accelerating processes of social and economic marginalisation, including landlessness, in particular for poor rural women that mainly use irrigated land for subsistence production. The study combines an analysis of the historical and geographical context with the study of relevant literature and original fieldwork. Fieldwork was conducted between February and June 2007 (where I mainly collected secondary data, maps and statistics and conducted preliminary visit to Chókwè) and from October 2007 to March 2008. Fieldwork methodology was qualitative and used semi-structured interviews with central and local Government officials, technical experts of the irrigation scheme, civil society organisations, international NGOs, rural extensionists, and water users from the irrigation scheme, in particular those women smallfarmers members of local farmers’ associations. Thanks to the collaboration with the Union of Farmers’ Associations of Chókwè, she has been able to participate to members’ meeting, to education and training activities addressed to women farmers members of the Union and to organize a group discussion. In Chókwè irrigation scheme, women account for the 32% of water users of the familiar sector (comprising plot-holders with less than 5 hectares of land) and for just 5% of the private sector. If one considers farmers’ associations of the familiar sector (a legacy of Frelimo’s cooperatives), women are 84% of total members. However, the security given to them by the land title that they have acquired through occupation is severely endangered by the use that they make of land, that is considered as “non efficient” by the irrigation scheme authority. Due to a reduced access to marketing possibilities and to inputs, training, information and credit women, in actual fact, risk to see their right to access land and water revoked because they are not able to sustain the increasing cost of the water fee. The myth of the “efficient producer” does not take into consideration the characteristics of inequality and gender discrimination of the neo-liberal market. Expecting small-farmers, and in particular women, to be able to compete in the globalized agricultural market seems unrealistic, and can perpetuate unequal gendered access to resources such as land and water.

Vascular wall stem cells. Selection and conditioning of progenitors useful for cell therapy. A pathological case study

The arterial wall contains MSCs with mesengenic and angiogenic abilities. These multipotent precursors have been isolated from variously-sized human adult segments, belying the notion that vessel wall is a relatively quiescent tissue. Recently, our group identified in normal human arteries a vasculogenic niche and subsequently isolated and characterized resident MSCs (VW-MSCs) with angiogenic ability and multilineage potential. To prove that VW-MSCs are involved in normal and pathological vascular remodeling, we used a long-term organ culture system; this method was of critical importance to follow spontaneous 3-D vascular remodeling without any influence of blood cells. Next we tried to identify and localize in situ the VW-MSCs and to understand their role in the vascular remodeling in failed arterial homografts. Subsequently, we isolated this cell population and tested in vitro their multilineage differentiation potential through immunohistochemical, immunofluorescence, RT-PCR and ultrastructural analysis. From 25-30cm2 of each vascular wall homograft sample, we isolated a cell population with MSCs properties; these cells expressed MSC lineage molecules (CD90, CD44, CD105, CD29, CD73), stemness (Notch-1, Oct-4, Sca-1, Stro-1) and pericyte markers (NG2) whilst were negative for hematopoietic and endothelial markers (CD34, CD133, CD45, KDR, CD146, CD31 and vWF). MSCs derived from failed homografts (H-MSCs) exhibited adipogenic, osteogenic and chondrogenic potential but scarce propensity to angiogenic and leiomyogenic differentiation. The present study demonstrates that failed homografts contain MSCs with morphological, phenotypic and functional MSCs properties; H-MSCs are long-lived in culture, highly proliferating and endowed with prompt ability to differentiate into adipocytes, osteocytes and chondrocytes; compared with VW-MSCs from normal arteries, H-MSCs show a failure in angiogenic and leiomyogenic differentiation. A switch in MSCs plasticity could be the basis of pathological remodeling and contribute to aneurysmal failure of arterial homografts. The study of VW-MSCs in a pathological setting indicate that additional mechanisms are involved in vascular diseases; their knowledge will be useful for opening new therapeutic options in cardiovascular diseases.

Sonic Hedgehog pathway impairment in Neural Precursor Cells of the Ts65Dn mouse, an animal model of Down syndrome

Mental retardation in Down syndrome (DS) has been imputed to the decreased brain volume, which is evident starting from the early phases of development. Recent studies in a widely used mouse model of DS, the Ts65Dn mouse, have shown that neurogenesis is severely impaired during the early phases of brain development, suggesting that this defect may be a major determinant of brain hypotrophy and mental retardation in individuals with DS. Recently, it has been found that in the cerebellum of Ts65Dn mice there is a defective responsiveness to Sonic Hedgehog (Shh), a potent mitogen that controls cell division during brain development, suggesting that failure of Shh signaling may underlie the reduced proliferation potency in DS. Based on these premises, we sought to identify the molecular mechanisms underlying derangement of the Shh pathway in neural precursor cells (NPCs) from Ts65Dn mice. We found that the expression levels of the Shh receptor Patched1 (Ptch1) were increased compared to controls both at the RNA and protein level. Partial silencing of Ptch1 expression in trisomic NPCs restored cell proliferation, indicating that proliferation impairment was due to Ptch1 overexpression. We further found that the overexpression of Ptch1 in trisomic NPCs is related to increased levels of AICD, a transcription-promoting fragment of amyloid precursor protein (APP). Increased AICD binding to the Ptch1 promoter favored its acetylated status, thus enhancing Ptch1 expression. Taken together, these data provide novel evidence that Ptch1 over expression underlies derangement of the Shh pathway in trisomic NPCs, with consequent proliferation impairment. The demonstration that Ptch1 over expression in trisomic NPCs is due to an APP fragment provides a link between this trisomic gene and the defective neuronal production that characterizes the DS brain.

The Efficiency of Microcredit Applied to Social Exclusion.

Microcredit has been a tool to alleviate poverty since long. This research is aimed to observe the efficiency of microcredit in the field of social exclusion. The development of questionnaires and use of existing tools was used to observe the tangible and intangible intertwining of microcredit and by doing so the effort was concentrated to observe whether microcredit has a direct effect on social exclusion or not. Bangladesh was chosen for the field study and 85 samples were taken for the analysis. It is a time period research and one year time was set to receive the sample and working on the statistical analysis. The tangible aspect was based on a World Bank questionnaire and the social capital questionnaire was developed through different well observed tools. The borrowers of Grameen Bank in Bangladesh, is the research sample whish shows a strong correlation between their tangible activity and social life. There are significant changes in tangible aspect and social participation observed from the research. Strong correlation between the two aspects was also found taking into account that the borrowers themselves have a vibrant social life in the village.

Fracture Mechanics Investigation of Structures with Defects

Fracture mechanics plays an important role in the material science, structure design and industrial production due to the failure of materials and structures are paid high attention in human activities. This dissertation, concentrates on some of the fractural aspects of shaft and composite which have being increasingly used in modern structures, consists four chapters within two parts. Chapters 1 to 4 are included in part 1. In the first chapter, the basic knowledge about the stress and displacement fields in the vicinity of a crack tip is introduced. A review involves the general methods of calculating stress intensity factors are presented. In Chapter 2, two simple engineering methods for a fast and close approximation of stress intensity factors of cracked or notched beams under tension, bending moment, shear force, as well as torque are presented. New formulae for calculating the stress intensity factors are proposed. One of the methods named Section Method is improved and applied to the three dimensional analysis of cracked circular section for calculating stress intensity factors. The comparisons between the present results and the solutions calculated by ABAQUS for single mode and mixed mode are studied. In chapter 3, fracture criteria for a crack subjected to mixed mode loading of two-dimension and three-dimension are reviewed. The crack extension angle for single mode and mixed mode, and the critical loading domain obtained by SEDF and MTS are compared. The effects of the crack depth and the applied force ratio on the crack propagation angle and the critical loading are investigated. Three different methods calculating the crack initiation angle for three-dimension analysis of various crack depth and crack position are compared. It should be noted that the stress intensity factors used in the criteria are calculated in section 2.1.

A journey through the capital structure of the banking sector: Empirical evidence for Europe from 2008 to 2012

Systemic risk is the protagonist of the recent financial crisis. This thesis proposes a definition and a propagation mechanism for systemic risk. Risk management has a direct linkage with capital management, when addressing the question that the risk handled by a financial institution is compatible with the amount of equity available. This thesis proposes a risk management of liquid market variables, which compose the assets of a bank, based on the statistical tool of PCA. The principal component analysis will define the PCR, or Principal Components of Risk. Such definition of Risk will be adopted to test if the risk represented by PCR is explanatory of the movements of equity and/or debt for the banks included in the in the index Itraxx financial senior: the results of these regressions will be compared with a formal Capital Adequacy test in order to assess the financial soundness of the main financial European institutions.

Estimation of Quasi-Rational DSGE Models

Small-scale dynamic stochastic general equilibrium have been treated as the benchmark of much of the monetary policy literature, given their ability to explain the impact of monetary policy on output, inflation and financial markets. One cause of the empirical failure of New Keynesian models is partially due to the Rational Expectations (RE) paradigm, which entails a tight structure on the dynamics of the system. Under this hypothesis, the agents are assumed to know the data genereting process. In this paper, we propose the econometric analysis of New Keynesian DSGE models under an alternative expectations generating paradigm, which can be regarded as an intermediate position between rational expectations and learning, nameley an adapted version of the "Quasi-Rational" Expectatations (QRE) hypothesis. Given the agents' statistical model, we build a pseudo-structural form from the baseline system of Euler equations, imposing that the length of the reduced form is the same as in the `best' statistical model.