Credit cycles in theory and experiment

We test in the laboratory the potential of evolutionary dynamics as predictor of actual behavior. To this end, we propose an asymmetricgame -which we interpret as a borrowerlender relation-, study itsevolutionary dynamics in a random matching set-up, and tests itspredictions. The model provides conditions for the existence ofcredit markets and credit cycles. The theoretical predictions seemto be good approximations of the experimental results.

Adverse selection, credit and efficiency: The case of the missing market

We analyze a standard environment of adverse selection in credit markets. In our environment,entrepreneurs who are privately informed about the quality of their projects needto borrow in order to invest. Conventional wisdom says that, in this class of economies, thecompetitive equilibrium is typically inefficient.We show that this conventional wisdom rests on one implicit assumption: entrepreneurscan only access monitored lending. If a new set of markets is added to provide entrepreneurswith additional funds, efficiency can be attained in equilibrium. An important characteristic ofthese additional markets is that lending in them must be unmonitored, in the sense that it doesnot condition total borrowing or investment by entrepreneurs. This makes it possible to attainefficiency by pooling all entrepreneurs in the new markets while separating them in the marketsfor monitored loans.

Effects of mineralocorticoid and K+ concentration on K+ secretion and ROMK channel expression in a mouse cortical collecting duct cell line.

The cortical collecting duct (CCD) plays a key role in regulated K(+) secretion, which is mediated mainly through renal outer medullary K(+) (ROMK) channels located in the apical membrane. However, the mechanisms of the regulation of urinary K(+) excretion with regard to K(+) balance are not well known. We took advantage of a recently established mouse CCD cell line (mCCD(cl1)) to investigate the regulation of K(+) secretion by mineralocorticoid and K(+) concentration. We show that this cell line expresses ROMK mRNA and a barium-sensitive K(+) conductance in its apical membrane. As this conductance is sensitive to tertiapin-Q, with an apparent affinity of 6 nM, and to intracellular acidification, it is probably mediated by ROMK. Overnight exposure to 100 nM aldosterone did not significantly change the K(+) conductance, while it increased the amiloride-sensitive Na(+) transport. Overnight exposure to a high K(+) (7 mM) concentration produced a small but significant increase in the apical membrane barium-sensitive K(+) conductance. The mRNA levels of all ROMK isoforms measured by qRT-PCR were not changed by altering the basolateral K(+) concentration but were decreased by 15-45% upon treatment with aldosterone (0.3 or 300 nM for 1 and 3 h). The paradoxical response of ROMK expression to aldosterone could possibly work as a preventative mechanism to avoid excessive K(+) loss which would otherwise result from the increased electrogenic Na(+) transport and associated depolarization of the apical membrane in the CCD. In conclusion, mCCD(cl1) cells demonstrate a significant K(+) secretion, probably mediated by ROMK, which is not stimulated by aldosterone but increased by overnight exposure to a high K(+) concentration.

Trade credit: Suppliers as debt collectors and insurance providers

There are two fundamental puzzles about trade credit: why does it appearto be so expensive,and why do input suppliers engage in the business oflending money? This paper addresses and answers both questions analysingthe interaction between the financial and the industrial aspects of thesupplier-customer relationship. It examines how, in a context of limitedenforceability of contracts, suppliers may have a comparative advantageover banks in lending to their customers because they hold the extrathreat of stopping the supply of intermediate goods. Suppliers may alsoact as lenders of last resort, providing insurance against liquidityshocks that may endanger the survival of their customers. The relativelyhigh implicit interest rates of trade credit result from the existenceof default and insurance premia. The implications of the model areexamined empirically using parametric and nonparametric techniques on apanel of UK firms.

The credit ratings game

The collapse of so many AAA-rated structured finance products in 2007-2008has brought renewed attention to the causes of ratings failures and the conflicts of interestin the Credit Ratings Industry. We provide a model of competition among Credit RatingsAgencies (CRAs) in which there are three possible sources of conflicts: 1) the CRA conflictof interest of understating credit risk to attract more business; 2) the ability of issuersto purchase only the most favorable ratings; and 3) the trusting nature of some investorclienteles who may take ratings at face value. We show that when combined, these give riseto three fundamental equilibrium distortions. First, competition among CRAs can reducemarket efficiency, as competition facilitates ratings shopping by issuers. Second, CRAs aremore prone to inflate ratings in boom times, when there are more trusting investors, andwhen the risks of failure which could damage CRA reputation are lower. Third, the industrypractice of tranching of structured products distorts market efficiency as its role is to deceivetrusting investors. We argue that regulatory intervention requiring: i) upfront paymentsfor rating services (before CRAs propose a rating to the issuer), ii) mandatory disclosure ofany rating produced by CRAs, and iii) oversight of ratings methodology can substantiallymitigate ratings inflation and promote efficiency.

Credit constraints, firms' precautionary investment and the business cycle

This paper studies the macroeconomic implications of firms' investment composition choices in the presence of credit constraints. Following a negative andpersistent aggregate productivity shock, firms shift into short-term investments because they produce more pledgeable output and because they help alleviate futureborrowing constraints. This produces a short-run dampening of the effects of theshock, at the expense of lower long-term investment and future output, relativeto an economy with no credit market imperfections. The effects are exacerbatedby a steepening of the term structure of interest rates that further encourages ashift towards short-term investments in the short-run. Small temporary shocks tothe severity of financing frictions generate large and long-lasting effects on outputthrough their impact on the composition of investment. A positive financial shockproduces much stronger effects than an identical negative shock, while the responsesto positive and negative shocks to aggregate productivity are roughly symmetric.Finally, the paper introduces a novel explanation for the countercyclicality of financing constraints of firms.

When in peril, retrench: Testing the portfolio channel of contagion

One plausible mechanism through which financial market shocks may propagate across countriesis through the impact that past gains and losses may have on investors risk aversion and behavior. This paper presents a stylized model illustrating how heterogeneous changes in investors risk aversion affect portfolio allocation decisions and stock prices. Our empirical findings suggest that when funds returns are below average, they adjust their holdings toward the average (or benchmark) portfolio. In so doing, funds tend to sell the assets of countries in which they were overweight , increasing their exposure to countries in which they were underweight. Based on this insight, the paper constructs an index of financial interdependence which reflects the extent to which countries share overexposed funds. The index helps in explain the pattern of stock market comovement across countries. Moreover, a comparison of this interdependence measure to indices of trade or commercial bank linkages indicates that our index can improve predictions about which countries are more likely to be affected by contagion from crisis centers.

Department of Commerce - Credit Union Division Performance Plan, FY 2009

Agency Performance Plan, Department of Commerce - Credit Union Division

Iowa Credit Union Division, Strategic Plan, 2008

This report outlines the strategic plan for Credit Union Division including, goals and mission.

Amiloride-sensitive epithelial Na+ channel is made of three homologous subunits.

The amiloride-sensitive epithelial sodium channel constitutes the rate-limiting step for sodium reabsorption in epithelial cells that line the distal part of the renal tubule, the distal colon, the duct of several exocrine glands, and the lung. The activity of this channel is upregulated by vasopressin and aldosterone, hormones involved in the maintenance of sodium balance, blood volume and blood pressure. We have identified the primary structure of the alpha-subunit of the rat epithelial sodium channel by expression cloning in Xenopus laevis oocytes. An identical subunit has recently been reported. Here we identify two other subunits (beta and gamma) by functional complementation of the alpha-subunit of the rat epithelial Na+ channel. The ion-selective permeability, the gating properties and the pharmacological profile of the channel formed by coexpressing the three subunits in oocytes are similar to that of the native channel.

Credit derivatives in emerging markets

Credit Derivatives are securities that offer protection against credit or default risk ofbonds or loans. The credit derivatives emerging market has grown rapidly and creditderivatives are widely used. This paper describes the emerging credit derivativesmarket structure. The current market activity is analyzed through elementary pricingdynamics and the study of the term structure of default risk. Focusing on theperformance of credit derivatives in stress situation, including legal and market risks,we discuss the potential consequences of a debt restructuring in a large emergingmarket borrower. The contribution of credit derivatives to the risk sharing in emergingmarkets is also examined.

Liddle's syndrome caused by a novel missense mutation (P617L) of the epithelial sodium channel beta subunit.

OBJECTIVE: The aim of the study was to search for mutations of SCNN1B and SCNN1G in an Italian family with apparently dominant autosomal transmission of a clinical phenotype consistent with Liddle's syndrome. METHODS: Genetic analysis was performed in the proband, his relatives, and 100 control subjects. To determine the functional role of the mutation identified in the proband, we expressed the mutant or wild-type epithelial sodium channel in Xenopus laevis oocytes. RESULTS: A novel point mutation, causing an expected substitution of a leucine residue for the second proline residue of the conserved PY motif (PPP x Y) of the beta subunit was identified in the proband. The functional expression of the mutant epithelial sodium channel in X. laevis oocytes showed a three-fold increase in the amiloride-sensitive current as compared with that of the wild-type channel. CONCLUSION: This newly identified mutation adds to other missense mutations of the PY motif of the beta subunit of the epithelial sodium channel, thus confirming its crucial role in the regulation of the epithelial sodium channel. To our knowledge, this is the first report of Liddle's syndrome in the Italian population, confirmed by genetic and functional analysis, with the identification of a gain-of-function mutation not previously reported.

International capital flows and credit market imperfections: A tale of two frictions

The financial crisis of 2007-08 has underscored the importance of adverse selection in financialmarkets. This friction has been mostly neglected by macroeconomic models of financialimperfections, however, which have focused almost exclusively on the effects of limited pledgeability.In this paper, we fill this gap by developing a standard growth model with adverseselection. Our main results are that, by fostering unproductive investment, adverse selection:(i) leads to an increase in the economy s equilibrium interest rate, and; (ii) it generates a negativewedge between the marginal return to investment and the equilibrium interest rate. Underfinancial integration, we show how this translates into excessive capital inflows and endogenouscycles. We also extend our model to the more general case in which adverse selection and limitedpledgeability coexist. We conclude that both frictions complement one another and show thatlimited pledgeability exacerbates the effects of adverse selection.

Molecular determinants of desensitization in an ENaC/degenerin channel.

Epithelial Na(+) channel (ENaC)/degenerin family members are involved in mechanosensation, blood pressure control, pain sensation, and the expression of fear. Several of these channel types display a form of desensitization that allows the channel to limit Na(+) influx during prolonged stimulation. We used site-directed mutagenesis and chemical modification, functional analysis, and molecular dynamics simulations to investigate the role of the lower palm domain of the acid-sensing ion channel 1, a member of the ENaC/degenerin family. The lower palm domains of this trimeric channel are arranged around a central vestibule, at ∼20 Å above the plasma membrane and are covalently linked to the transmembrane channel parts. We show that the lower palm domains approach one another during desensitization. Residues in the palm co-determine the pH dependence of desensitization, its kinetics, and the stability of the desensitized state. Mutations of palm residues impair desensitization by preventing the closing movement of the palm. Overexpression of desensitization-impaired channel mutants in central neurons allowed--in contrast to overexpression of wild type--a sustained signaling response to rapid pH fluctuations. We identify and describe here the function of an important regulatory domain that most likely has a conserved role in ENaC/degenerin channels.