Universal banking, competition and risk in a macro model

A stylized macroeconomic model is developed with an indebted, heterogeneous Investment Banking Sector funded by borrowing from a retail banking sector. The government guarantees retail deposits. Investment banks choose how risky their activities should be. We compared the benefits of separated vs. universal banking modelled as a vertical integration of the retail and investment banks. The incidence of banking default is considered under different constellations of shocks and degrees of competitiveness. The benefits of universal banking rise in the volatility of idiosyncratic shocks to trading strategies and are positive even for very bad common shocks, even though government bailouts, which are costly, are larger compared to the case of separated banking entities. The welfare assessment of the structure of banks may depend crucially on the kinds of shock hitting the economy as well as on the efficiency of government intervention.

Comparative Statics of Asset Prices: the effect of other assets' risk

Currently, financial economics is unable to predict changes in asset prices with respect to changes in the underlying risk factors, even when an asset's dividend is independent of a given factor. This paper takes steps towards addressing this issue by highlighting a crucial component of wealth effects on asset prices hitherto ignored by the literature. Changes in wealth do not only alter an agents risk aversion, but also her perceived 'riskiness' of a security. The latter enhances significantly the extent to which market- clearing leads to endogenously-generated correlation across asset prices, over and above that induced by correlation between payoffs, giving the appearance of 'contagion.'

Modeling Dependence Structure and Forecasting Portfolio Value-at-Risk with Dynamic Copulas

We study the asymmetric and dynamic dependence between financial assets and demonstrate, from the perspective of risk management, the economic significance of dynamic copula models. First, we construct stock and currency portfolios sorted on different characteristics (ex ante beta, coskewness, cokurtosis and order flows), and find substantial evidence of dynamic evolution between the high beta (respectively, coskewness, cokurtosis and order flow) portfolios and the low beta (coskewness, cokurtosis and order flow) portfolios. Second, using three different dependence measures, we show the presence of asymmetric dependence between these characteristic-sorted portfolios. Third, we use a dynamic copula framework based on Creal et al. (2013) and Patton (2012) to forecast the portfolio Value-at-Risk of long-short (high minus low) equity and FX portfolios. We use several widely used univariate and multivariate VaR models for the purpose of comparison. Backtesting our methodology, we find that the asymmetric dynamic copula models provide more accurate forecasts, in general, and, in particular, perform much better during the recent financial crises, indicating the economic significance of incorporating dynamic and asymmetric dependence in risk management.

Factors Affecting Audit Quality in the 2007 UK Regulatory Environment: Perceptions of Chief Financial Officers, Audit Committee Chairs and Audit Engagement Partners

In line with global changes, the UK regulatory regime for audit and corporate governance has changed significantly since the Enron scandal, with an increased role for audit committees and independent inspection of audit firms. UK listed company chief financial officers (CFOs), audit committee chairs (ACCs) and audit partners (APs) were surveyed in 2007 to obtain views on the impact of 36 economic and regulatory factors on audit quality. 498 usable responses were received, representing a response rate of 36%. All groups rated various audit committee interactions with auditors among the factors most enhancing audit quality. Exploratory factor analysis reduces the 36 factors to nine uncorrelated dimensions. In order of extraction, these are: economic risk; audit committee activities; risk of regulatory action; audit firm ethics; economic independence of auditor; audit partner rotation; risk of client loss; audit firm size; and, lastly, International Standards on Auditing (ISAs) and audit inspection. In addition to the activities of the audit committee, risk factors for the auditor (both economic and certain regulatory risks) are believed to most enhance audit quality. However, ISAs and the audit inspection regime, aspects of the ‘standards-surveillance compliance’ regulatory system, are viewed as less effective. Respondents commented that aspects of the changed regime are largely process and compliance driven, with high costs for limited benefits, supporting psychological bias regulation theory that claims there is overconfidence that a useful regulatory intervention exists.

Risk Attitude And Wage Growth: Replication And Reconstruction

We replicate Shaw (1996) who found that individual wage growth is higher for individuals with greater preference for risk taking. Expanding her dataset with more American observations and data for Germany, Spain and Italy, we find mixed support for the earlier results. We present and estimate a new model and find that in particular the wage level is sensitive to attitudes towards risk taking. Comments given at the Labour Economics Conference in honour of Niels Westergaard (Nyborg, August 2008) and EALE 2008 (Amsterdam) and at seminars in Maastricht,Reus and Essen (RWI) are gratefully acknowledged. The authors also acknowledge financial support from the Spanish Ministry of Science and Innovation (grant number SEJ2007-66318) and from the Barcelona Economics Program of CREA. JEL code: J24; J30. Key words: wage growth, risk, post-school investment.

Misallocation of capital in a model of endogenous financial intermediation and insurance

In this paper we analyze productivity and welfare losses from capital misallocation in a general equilibrium model of occupational choice and endogenous financial intermediation. We study the effects of borrowing and lending, insurance, and risk sharing on the optimal allocation of resources. We find that financial markets together with general equilibrium effects have large impact on entrepreneurs' entry and firm-size decisions. Efficiency gains are increasing in the quality of financial markets, particularly in their ability to alleviate a financing constraint by providing insurance against idiosyncratic risk.

Credit risk contributions under the Vasicek one-factor model: a fast wavelet expansion approximation

To measure the contribution of individual transactions inside the total risk of a credit portfolio is a major issue in financial institutions. VaR Contributions (VaRC) and Expected Shortfall Contributions (ESC) have become two popular ways of quantifying the risks. However, the usual Monte Carlo (MC) approach is known to be a very time consuming method for computing these risk contributions. In this paper we consider the Wavelet Approximation (WA) method for Value at Risk (VaR) computation presented in [Mas10] in order to calculate the Expected Shortfall (ES) and the risk contributions under the Vasicek one-factor model framework. We decompose the VaR and the ES as a sum of sensitivities representing the marginal impact on the total portfolio risk. Moreover, we present technical improvements in the Wavelet Approximation (WA) that considerably reduce the computational effort in the approximation while, at the same time, the accuracy increases.

Solvency Capital estimation and Risk Measures

This paper examines why a financial entity’s solvency capital estimation might be underestimated if the total amount required is obtained directly from a risk measurement. Using Monte Carlo simulation we show that, in some instances, a common risk measure such as Value-at-Risk is not subadditive when certain dependence structures are considered. Higher risk evaluations are obtained for independence between random variables than those obtained in the case of comonotonicity. The paper stresses, therefore, the relationship between dependence structures and capital estimation.

Framework for Corporate and Financial Governance for Regulatory Bodies under the aegis of the Department of Health and Children

The document should be read as supplementary to existing requirements as set out both in statute â?" particularly legislation specific to your organisation, the Health Acts 1947-2004, Ombudsman Act, 1980, Data Protection Acts 1988 & 2003, Freedom of Information Acts 1997-2003, Ethics in Public Office Acts 1995 & 2001, Ombudsman for Children Act, 2002 and the Comptroller and Auditor General (Amendment) Act, 1993 – and in Government approved guidelines, including the Code of Practice for the Governance of State Bodies (2001), Public Financial Procedures, The Role and Responsibilities of Accounting Officers (2003) and Risk Management Guidance for Government Departments and Offices (2004). Read the report (PDF, 1.4mb)  

Genetic variability of the mTOR pathway and prostate cancer risk in the European Prospective Investigation on Cancer (EPIC)

The mTOR (mammalian target of rapamycin) signal transduction pathway integrates various signals, regulating ribosome biogenesis and protein synthesis as a function of available energy and amino acids, and assuring an appropriate coupling of cellular proliferation with increases in cell size. In addition, recent evidence has pointed to an interplay between the mTOR and p53 pathways. We investigated the genetic variability of 67 key genes in the mTOR pathway and in genes of the p53 pathway which interact with mTOR. We tested the association of 1,084 tagging SNPs with prostate cancer risk in a study of 815 prostate cancer cases and 1,266 controls nested within the European Prospective Investigation into Cancer and Nutrition (EPIC). We chose the SNPs (n = 11) with the strongest association with risk (p<0.01) and sought to replicate their association in an additional series of 838 prostate cancer cases and 943 controls from EPIC. In the joint analysis of first and second phase two SNPs of the PRKCI gene showed an association with risk of prostate cancer (ORallele = 0.85, 95% CI 0.78–0.94, p = 1.3×10−3 for rs546950 and ORallele = 0.84, 95% CI 0.76–0.93, p = 5.6×10−4 for rs4955720). We confirmed this in a meta-analysis using as replication set the data from the second phase of our study jointly with the first phase of the Cancer Genetic Markers of Susceptibility (CGEMS) project. In conclusion, we found an association with prostate cancer risk for two SNPs belonging to PRKCI, a gene which is frequently overexpressed in various neoplasms, including prostate cancer.

Alcohol intake and the risk of coronary heart disease in the Spanish EPIC

Background: The association between alcohol consumption and coronary heart disease (CHD) has been widely studied. Most of these studies have concluded that moderate alcohol intake reduces the risk of CHD. There are numerous discussions regarding whether this association is causal or biased. The objective of this paper is to analyse the association between alcohol intake and CHD risk in the Spanish cohort of the European Prospective Investigation into Cancer (EPIC). Methods: Participants from the EPIC Spanish cohort were included (15 630 men and 25 808 women). The median follow-up period was 10 years. Ethanol intake was calculated using a validated dietary history questionnaire. Participants with a definite CHD event were considered cases. A Cox regression model adjusted for relevant co-variables and stratified by age was produced. Separate models were carried out for men and women. Results: The crude CHD incidence rate was 300.6/100 000 person-years for men and 47.9/100 000 person-years for women. Moderate, high and very high consumption was associated with a reduced risk of CHD in men: hazard ratio 0.90 (95% CI 0.56 to 1.44) for former drinkers, 0.65 (95% CI 0.41 to 1.04) for low, 0.49 (95% CI 0.32 to 0.76) for moderate, 0.46 (95% CI 0.30 to 0.71) for high and 0.50 (95% CI 0.29 to 0.85) for very high consumers. A negative association was found in women, with p values above 0.05 in all categories. Conclusions: Alcohol intake in men aged 29–69 years was associated with a more than 30% lower CHD incidence. This study is based on a large prospective cohort study and is free of the abstainer error.

Risk of type 2 diabetes according to traditional and emerging anthropometric indices in Spain, a Mediterranean country with high prevalence of obesity: results from a large-scale prospective cohort study.

Background: Obesity is a major risk factor for type 2 diabetes mellitus (T2DM). A proper anthropometric characterisation of T2DM risk is essential for disease prevention and clinical risk assessement. Methods: Longitudinal study in 37 733 participants (63% women) of the Spanish EPIC (European Prospective Investigation into Cancer and Nutrition) cohort without prevalent diabetes. Detailed questionnaire information was collected at baseline and anthropometric data gathered following standard procedures. A total of 2513 verified incident T2DM cases occurred after 12.1 years of mean follow-up. Multivariable Cox regression was used to calculate hazard ratios of T2DM by levels of anthropometric variables. Results: Overall and central obesity were independently associated with T2DM risk. BMI showed the strongest association with T2DM in men whereas waist-related indices were stronger independent predictors in women. Waist-to-height ratio revealed the largest area under the ROC curve in men and women, with optimal cut-offs at 0.60 and 0.58, respectively. The most discriminative waist circumference (WC) cut-off values were 99.4 cm in men and 90.4 cm in women. Absolute risk of T2DM was higher in men than women for any combination of age, BMI and WC categories, and remained low in normal-waist women. The population risk of T2DM attributable to obesity was 17% in men and 31% in women. Conclusions: Diabetes risk was associated with higher overall and central obesity indices even at normal BMI and WC values. The measurement of waist circumference in the clinical setting is strongly recommended for the evaluation of future T2DM risk in women.

Stochastic optimal bid to electricity markets with environmental risk constraints

There are many factors that influence the day-ahead market bidding strategies of a generation company (GenCo) in the current energy market framework. Environmental policy issues have become more and more important for fossil-fuelled power plants and they have to be considered in their management, giving rise to emission limitations. This work allows to investigate the influence of both the allowances and emission reduction plan, and the incorporation of the derivatives medium-term commitments in the optimal generation bidding strategy to the day-ahead electricity market. Two different technologies have been considered: the coal thermal units, high-emission technology, and the combined cycle gas turbine units, low-emission technology. The Iberian Electricity Market and the Spanish National Emissions and Allocation Plans are the framework to deal with the environmental issues in the day-ahead market bidding strategies. To address emission limitations, some of the standard risk management methodologies developed for financial markets, such as Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR), have been extended. This study offers to electricity generation utilities a mathematical model to determinate the individual optimal generation bid to the wholesale electricity market, for each one of their generation units that maximizes the long-run profits of the utility abiding by the Iberian Electricity Market rules, the environmental restrictions set by the EU Emission Trading Scheme, as well as the restrictions set by the Spanish National Emissions Reduction Plan. The economic implications for a GenCo of including the environmental restrictions of these National Plans are analyzed and the most remarkable results will be presented.

Deletion of Sirt3 does not affect atherosclerosis but accelerates weight gain and impairs rapid metabolic adaptation in LDL receptor knockout mice: implications for cardiovascular risk factor development.

Sirt3 is a mitochondrial NAD(+)-dependent deacetylase that governs mitochondrial metabolism and reactive oxygen species homeostasis. Sirt3 deficiency has been reported to accelerate the development of the metabolic syndrome. However, the role of Sirt3 in atherosclerosis remains enigmatic. We aimed to investigate whether Sirt3 deficiency affects atherosclerosis, plaque vulnerability, and metabolic homeostasis. Low-density lipoprotein receptor knockout (LDLR(-/-)) and LDLR/Sirt3 double-knockout (Sirt3(-/-)LDLR(-/-)) mice were fed a high-cholesterol diet (1.25 % w/w) for 12 weeks. Atherosclerosis was assessed en face in thoraco-abdominal aortae and in cross sections of aortic roots. Sirt3 deletion led to hepatic mitochondrial protein hyperacetylation. Unexpectedly, though plasma malondialdehyde levels were elevated in Sirt3-deficient mice, Sirt3 deletion affected neither plaque burden nor features of plaque vulnerability (i.e., fibrous cap thickness and necrotic core diameter). Likewise, plaque macrophage and T cell infiltration as well as endothelial activation remained unaltered. Electron microscopy of aortic walls revealed no difference in mitochondrial microarchitecture between both groups. Interestingly, loss of Sirt3 was associated with accelerated weight gain and an impaired capacity to cope with rapid changes in nutrient supply as assessed by indirect calorimetry. Serum lipid levels and glucose tolerance were unaffected by Sirt3 deletion in LDLR(-/-) mice. Sirt3 deficiency does not affect atherosclerosis in LDLR(-/-) mice. However, Sirt3 controls systemic levels of oxidative stress, limits expedited weight gain, and allows rapid metabolic adaptation. Thus, Sirt3 may contribute to postponing cardiovascular risk factor development.

Alloimmunity and nonimmunologic risk factors in cardiac allograft vasculopathy.

Graft vasculopathy is an accelerated form of coronary artery disease that occurs in transplanted hearts. Despite major advances in immunosuppression, the prevalence of the disease has remained substantially unchanged during the last two decades. According to the 'response to injury' paradigm, graft vasculopathy is the result of a continuous inflammatory response to tissue injury initiated by both alloantigen-dependent and independent stress responses. Experimental evidence suggests that these responses may become self-sustaining, as allograft re-transplantation into the donor strain at a later stage fails to prevent disease progression. Histological evidence of endothelitis and arteritis, in association with intima fibrosis and atherosclerosis, reflects the central role of alloimmunity and inflammation in the development of arterial lesions. Experimental results in gene-targeted mouse models indicate that cellular and humoral immune responses are both involved in the pathogenesis of graft vasculopathy. Circulating antibodies against donor endothelium are found in a significant number of patients, but their pathogenic role is still controversial. Alloantigen-independent factors include donor-transmitted coronary artery disease, surgical trauma, ischaemia-reperfusion injury, viral infections, hyperlipidaemia, hypertension, and glucose intolerance. Recent therapeutic advances include the use of novel immunosuppressive agents such as sirolimus (rapamycin), HMG-CoA reductase inhibitors, calcium channel blockers, and angiotensin converting enzyme inhibitors. Optimal treatment of cardiovascular risk factors remains of paramount importance.