Asset-backed securities: The key to unlocking Europe's credit markets? Bruegel Policy Contribution 2014/07, 24 July 2014

The European market for asset-backed securities (ABS) has all but closed for business since the start of the economic and financial crisis. ABS (see Box 1) were in fact the first financial assets hit at the onset of the crisis in 2008. The subprime mortgage meltdown caused a deterioration in the quality of collateral in the ABS market in the United States, which in turn dried up overall liquidity because ABS AAA notes were popular collateral for inter-bank lending. The lack of demand for these products, together with the Great Recession in 2009, had a considerable negative impact on the European ABS market. The post-crisis regulatory environment has further undermined the market. The practice of slicing and dicing of loans into ABS packages was blamed for starting and spreading the crisis through the global financial system. Regulation in the post-crisis context has thus been relatively unfavourable to these types of instruments, with heightened capital requirements now necessary for the issuance of new ABS products. And yet policymakers have recently underlined the need to revitalise the ABS market as a tool to improve credit market conditions in the euro area and to enhance transmission of monetary policy. In particular, the European Central Bank and the Bank of England have jointly emphasised that: “a market for prudently designed ABS has the potential to improve the efficiency of resource allocation in the economy and to allow for better risk sharing... by transforming relatively illiquid assets into more liquid securities. These can then be sold to investors thereby allowing originators to obtain funding and, potentially, transfer part of the underlying risk, while investors in such securities can diversify their portfolios... . This can lead to lower costs of capital, higher economic growth and a broader distribution of risk” (ECB and Bank of England, 2014a). In addition, consideration has started to be given to the extent to which ABS products could become the target of explicit monetary policy operations, a line of action proposed by Claeys et al (2014). The ECB has officially announced the start of preparatory work related to possible outright purchases of selected ABS1. In this paper we discuss how a revamped market for corporate loans securitised via ABS products, and how use of ABS as a monetary policy instrument, can indeed play a role in revitalising Europe’s credit market. However, before using this instrument a number of issues should be addressed: First, the European ABS market has significantly contracted since the crisis. Hence it needs to be revamped through appropriate regulation if securitisation is to play a role in improving the efficiency of resource allocation in the economy. Second, even assuming that this market can expand again, the European ABS market is heterogeneous: lending criteria are different in different countries and banking institutions and the rating methodologies to assess the quality of the borrowers have to take these differences into account. One further element of differentiation is default law, which is specific to national jurisdictions in the euro area. Therefore, the pool of loans will not only be different in terms of the macro risks related to each country of origination (which is a ‘positive’ idiosyncratic risk, because it enables a portfolio manager to differentiate), but also in terms of the normative side, in case of default. The latter introduces uncertainties and inefficiencies in the ABS market that could create arbitrage opportunities. It is also unclear to what extent a direct purchase of these securities by the ECB might have an impact on the credit market. This will depend on, for example, the type of securities targeted in terms of the underlying assets that would be considered as eligible for inclusion (such as loans to small and medium-sized companies, car loans, leases, residential and commercial mortgages). The timing of a possible move by the ECB is also an issue; immediate action would take place in the context of relatively limited market volumes, while if the ECB waits, it might have access to a larger market, provided steps are taken in the next few months to revamp the market. We start by discussing the first of these issues – the size of the EU ABS market. We estimate how much this market could be worth if some specific measures are implemented. We then discuss the different options available to the ECB should they decide to intervene in the EU ABS market. We include a preliminary list of regulatory steps that could be taken to homogenise asset-backed securities in the euro area. We conclude with our recommended course of action.

Lake-effect snow as the dominant control of mesic-forest distribution in Michigan, USA

1Recent studies demonstrated the sensitivity of northern forest ecosystems to changes in the amount and duration of snow cover at annual to decadal time scales. However, the consequences of snowfall variability remain uncertain for ecological variables operating at longer time scales, especially the distributions of forest communities. 2The Great Lakes region of North America offers a unique setting to examine the long-term effects of variable snowfall on forest communities. Lake-effect snow produces a three-fold gradient in annual snowfall over tens of kilometres, and dramatic edaphic variations occur among landform types resulting from Quaternary glaciations. We tested the hypothesis that these factors interact to control the distributions of mesic (dominated by Acer saccharum, Tsuga canadensis and Fagus grandifolia) and xeric forests (dominated by Pinus and Quercus spp.) in northern Lower Michigan. 3We compiled pre-European-settlement vegetation data and overlaid these data with records of climate, water balance and soil, onto Landtype Association polygons in a geographical information system. We then used multivariate adaptive regression splines to model the abundance of mesic vegetation in relation to environmental controls. 4Snowfall is the most predictive among five variables retained by our model, and it affects model performance 29% more than soil texture, the second most important variable. The abundance of mesic trees is high on fine-textured soils regardless of snowfall, but it increases with snowfall on coarse-textured substrates. Lake-effect snowfall also determines the species composition within mesic forests. The weighted importance of A. saccharum is significantly greater than of T. canadensis or F. grandifolia within the lake-effect snowbelt, whereas T. canadensis is more plentiful outside the snowbelt. These patterns are probably driven by the influence of snowfall on soil moisture, nutrient availability and fire return intervals. 5Our results imply that a key factor dictating the spatio-temporal patterns of forest communities in the vast region around the Great Lakes is how the lake-effect snowfall regime responds to global change. Snowfall reductions will probably cause a major decrease in the abundance of ecologically and economically important species, such as A. saccharum.

Physical Characteristics and Estimated Hydraulic Conductivity from Grain-Size Distribution for Vashon Till, South-Central Puget Lowland, Washington

Population growth, urban development, and increased commercial and industrial activity in the south-central Puget Lowlands of Washington State has led to an increased demand for groundwater. The Vashon till is a glacially consolidated, low-permeability unit comprising unstratified clay, silt, cobbles and boulders with ubiquitous coarse-grained lenses and is an extensive surficial unit throughout the south-central Puget Lowland. Thus, understanding the physical and hydrological characteristics – specifically, the hydraulic conductivity – of this unit is a necessary component of a groundwater model. This study provides (1) a record of the physical characteristics of Vashon till deposits within the study area; and (2) an estimate of the highest, lowest, and average value of saturated hydraulic conductivity based on the grain-size distribution of Vashon till samples collected from six field sites in the Puyallup River Watershed. Analysis shows that the average moisture content ranges between about 1 and 6%, average dry bulk density is about 2.20 g/cm3, and average porosity is about 17%. Grain-size distributions show that half of the samples analyzed are well graded, while the other half is poorly graded. Grain-size distributions also show an average d10 value of about 0.20 mm, and average ff values ≤ 16%, which are key values in estimating the saturated hydraulic conductivity of over-consolidated glacial deposits. Based on these observed values, the estimates of hydraulic conductivity range from a minimum of 0.02 m/d to a maximum of 1.38 m/d in within the general Vashon till.

Quantum interference effects in a cavity QED system

We consider the effect of quantum interference on population distribution and photon statistics of a cavity field interacting with dressed states of a strongly driven three-level atom. We analyse three coupling configurations of the cavity field to the driven atom, with the cavity frequency tuned to the outer Rabi sideband, the inner Rabi sideband and the central frequency of the 'singly dressed' three-level atom. The quantum doubly dressed states for each configuration are identified and the population distribution and photon statistics are interpreted in terms of transitions among these dressed states and their populations. We find that the population distribution depends strongly on quantum interference and the cavity damping. For the cavity field tuned to the outer or inner Rabi sidebands the cavity damping induces transitions between the dressed states which are forbidden for the ordinary spontaneous emission. Moreover, we find that in the case of the cavity field coupled to the inner Rabi sideband the population distribution is almost Poissonian with a large average number of photons that can be controlled by quantum interference. This system can be considered as a one-atom dressed-state laser with controlled intensity.

Experimental tests of quantum nonlinear dynamics in atom optics

Cold atoms in optical potentials provide an ideal test bed to explore quantum nonlinear dynamics. Atoms are prepared in a magneto-optic trap or as a dilute Bose-Einstein condensate and subjected to a far detuned optical standing wave that is modulated. They exhibit a wide range of dynamics, some of which can be explained by classical theory while other aspects show the underlying quantum nature of the system. The atoms have a mixed phase space containing regions of regular motion which appear as distinct peaks in the atomic momentum distribution embedded in a sea of chaos. The action of the atoms is of the order of Planck's constant, making quantum effects significant. This tutorial presents a detailed description of experiments measuring the evolution of atoms in time-dependent optical potentials. Experimental methods are developed providing means for the observation and selective loading of regions of regular motion. The dependence of the atomic dynamics on the system parameters is explored and distinct changes in the atomic momentum distribution are observed which are explained by the applicable quantum and classical theory. The observation of a bifurcation sequence is reported and explained using classical perturbation theory. Experimental methods for the accurate control of the momentum of an ensemble of atoms are developed. They use phase space resonances and chaotic transients providing novel ensemble atomic beamsplitters. The divergence between quantum and classical nonlinear dynamics is manifest in the experimental observation of dynamical tunnelling. It involves no potential barrier. However a constant of motion other than energy still forbids classically this quantum allowed motion. Atoms coherently tunnel back and forth between their initial state of oscillatory motion and the state 180 out of phase with the initial state.

Pseudo memory effects, majorization and entropy in quantum random walks

A quantum random walk on the integers exhibits pseudo memory effects, in that its probability distribution after N steps is determined by reshuffling the first N distributions that arise in a classical random walk with the same initial distribution. In a classical walk, entropy increase can be regarded as a consequence of the majorization ordering of successive distributions. The Lorenz curves of successive distributions for a symmetric quantum walk reveal no majorization ordering in general. Nevertheless, entropy can increase, and computer experiments show that it does so on average. Varying the stages at which the quantum coin system is traced out leads to new quantum walks, including a symmetric walk for which majorization ordering is valid but the spreading rate exceeds that of the usual symmetric quantum walk.

A PbS quantum-cube: conducting polymer composite for photovoltaic applications

We have developed a new non-polar synthesis for lead sulfide (PbS) quantum-cubes in the conjugated polymer poly-2-methoxy, 5-(2-ethyl-hexyloxy-p-phenylenevinylene) MEH-PPV. The conducting polymer acts to template and control the quantum-cube growth. Transmission electron microscopy of the composites has shown a bimodal distribution of cube sizes between 5 and 15 nm is produced with broad optical absorption from 300 to 650 nm. Photoluminescence suggests electronic coupling between the cubes and the conducting polymer matrix. The synthesis and initial characterization are presented in this paper. (C) 2003 Elsevier B.V. All rights reserved.

Continuous-variable quantum-state sharing via quantum disentanglement

Quantum-state sharing is a protocol where perfect reconstruction of quantum states is achieved with incomplete or partial information in a multipartite quantum network. Quantum-state sharing allows for secure communication in a quantum network where partial information is lost or acquired by malicious parties. This protocol utilizes entanglement for the secret-state distribution and a class of quantum disentangling protocols for the state reconstruction. We demonstrate a quantum-state sharing protocol in which a tripartite entangled state is used to encode and distribute a secret state to three players. Any two of these players can collaborate to reconstruct the secret state, while individual players obtain no information. We investigate a number of quantum disentangling processes and experimentally demonstrate quantum-state reconstruction using two of these protocols. We experimentally measure a fidelity, averaged over all reconstruction permutations, of F=0.73 +/- 0.02. A result achievable only by using quantum resources.

Neuronal voltage-gated sodium channel subtypes: Key roles in inflammatory and neuropathic pain

Voltage-gated sodium channels (VGSCs) play an important role in neuronal excitability. Regulation of VGSC activity is a complex phenomenon that occurs at multiple levels in the cell, including transcriptional regulation, post-translational modification and membrane insertion and retrieval. Multiple VGSC subtypes exist that vary in their biophysical and pharmacological properties and tissue distribution. Any alteration of the VGSC subtype profile of a neuron or the mechanisms that regulate VGSC activity can cause significant changes in neuronal excitability. Inflammatory and neuropathic pain states are characterised by alterations in VGSC subtype composition and activity in sensory neurons. This review focuses on the VGSC subtypes involved in such pain states. (c) 2006 Elsevier Ltd. All rights reserved.

Highly efficient luminescence from a hybrid state found in strongly quantum confined PbS nanocrystals

We report that high quality PbS nanocrystals, synthesized in the strong quantum confinement regime, have quantum yields as high as 70% at room temperature. We use a combination of modelling and photoluminescence up-conversion to show that we obtain a nearly monodisperse size distribution. Nevertheless, the emission displays a large nonresonant Stokes shift. The magnitude of the Stokes shift is found to be directly proportional to the degree of quantum confinement, from which we establish that the emission results from the recombination of one quantum confined charge carrier with one localized or surface-trapped charge carrier. Furthermore, the surface state energy is found to lie outside the bulk bandgap so that surface-related emission only commences for strongly quantum confined nanocrystals, thus highlighting a regime where improved surface passivation becomes necessary.

Nanotossicologia dei quantum dot di CdS in linee cellulari umane

Le nanotecnologie sono un settore emergente in rapida crescita, come dimostra l'esplosione del mercato dei prodotti ad esso collegati. I quantum dot di cadmio solfuro (CdS QD) sono ampiamente utilizzati per la produzione di materiali semiconduttori e dispositivi optoelettronici; tuttavia, non sono ancora completamente chiari gli effetti di questi nanomateriali sulla salute umana. Questo lavoro di dottorato si pone l'obbiettivo di definire il potenziale citotossico e genotossico dei CdS QD in linee cellulari umane e definirne il meccanismo implicato. A questo scopo, essendo il fegato uno dei principali organi di accumulo del cadmio e dei nanomateriali a base di cadmio, è stata utilizzata la linea cellulare HepG2 derivante da un epatocarcinoma umano. È stato evidenziato, in seguito all'assorbimento, da parte delle cellule, dei CdS QD, un effetto citotossico, con conseguente modulazione dell'espressione genica di una serie di geni coinvolti sia nei processi di rescue (autofagia, risposta allo stress) sia in quelli di morte cellulare programmata. È stato, inoltre, dimostrata l'assenza di un rilevante effetto genotossico dipendente da questi nanomateriali. Infine, è stato osservato che cellule esposte ai CdS QD presentano mitocondri con un potenziale di membrana alterato, con conseguente alterazione della funzionalità di tale organello, pur conservando l'integrità del DNA mitocondriale.

The topographic distribution of the magnetic P100M to full- and half-field stimulation

Visual evoked magnetic responses were recorded to full-field and left and right half-field stimulation with three check sizes (70′, 34′ and 22′) in five normal subjects. Recordings were made sequentially on a 20-position grid (4 × 5) based on the inion, by means of a single-channel direct current-Superconducting Quantum Interference Device second-order gradiometer. The topographic maps were consistent on the same subjects recorded 2 months apart. The half-field responses produced the strongest signals in the contralateral hemisphere and were consistent with the cruciform model of the calcarine fissure. Right half fields produced upper-left-quadrant outgoing fields and lower-left-quadrant ingoing fields, while the left half field produced the opposite response. The topographic maps also varied with check size, with the larger checks producing positive or negative maximum position more anteriorly than small checks. In addition, with large checks the full-field responses could be explained as the summation of the two half fields, whereas full-field responses to smaller checks were more unpredictable and may be due to sources located at the occipital pole or lateral surface. In addition, dipole sources were located as appropriate with the use of inverse problem solutions. Topographic data will be vital to the clinical use of the visual evoked field but, in addition, provides complementary information to visual evoked potentials, allowing detailed studies of the visual cortex. © 1992 Kluwer Academic Publishers.

Two sides to attitudinal commitment:the effect of calculative and loyalty commitment on enforcement mechanism in distribution channels

Previous conceptualizations of attitudinal commitment are extended by considering two very different components of a manufacturer’s attachment to an independent channel intermediary. Relying on commitment theory, a model is developed that describes how attitudinal commitment may reside in either the instrumental or the social strain of a manufacturer’s relationship with its distributor. For each strain, the developmental role played by key facets of the channel setting—relative dependence, pledges, and trust—are shown. Furthermore, the nature of the attachment bond is posited to motivate very different governance mechanisms as the distribution agreement is enforced by either social or contractual means. Empirical support for the model demonstrates that an expanded view of attitudinal commitment is important in understanding the complex nature of attachment in channel relationships.