The Optimal Capital Structure of Banks: Balancing Deposit Insurance, Capital Requirements and Tax-Advantaged Debt

The capital structure and regulation of financial intermediaries is an important topic for practitioners, regulators and academic researchers. In general, theory predicts that firms choose their capital structures by balancing the benefits of debt (e.g., tax and agency benefits) against its costs (e.g., bankruptcy costs). However, when traditional corporate finance models have been applied to insured financial institutions, the results have generally predicted corner solutions (all equity or all debt) to the capital structure problem. This paper studies the impact and interaction of deposit insurance, capital requirements and tax benefits on a bankÇs choice of optimal capital structure. Using a contingent claims model to value the firm and its associated claims, we find that there exists an interior optimal capital ratio in the presence of deposit insurance, taxes and a minimum fixed capital standard. Banks voluntarily choose to maintain capital in excess of the minimum required in order to balance the risks of insolvency (especially the loss of future tax benefits) against the benefits of additional debt. Because we derive a closed- form solution, our model provides useful insights on several current policy debates including revisions to the regulatory framework for GSEs, tax policy in general and the tax exemption for credit unions.

Asset Pricing with Heterogeneous Agents, Incomplete Markets and Trading Constraints

The consumption capital asset pricing model is the standard economic model used to capture stock market behavior. However, empirical tests have pointed out to its inability to account quantitatively for the high average rate of return and volatility of stocks over time for plausible parameter values. Recent research has suggested that the consumption of stockholders is more strongly correlated with the performance of the stock market than the consumption of non-stockholders. We model two types of agents, non-stockholders with standard preferences and stock holders with preferences that incorporate elements of the prospect theory developed by Kahneman and Tversky (1979). In addition to consumption, stockholders consider fluctuations in their financial wealth explicitly when making decisions. Data from the Panel Study of Income Dynamics are used to calibrate the labor income processes of the two types of agents. Each agent faces idiosyncratic shocks to his labor income as well as aggregate shocks to the per-share dividend but markets are incomplete and agents cannot hedge consumption risks completely. In addition, consumers face both borrowing and short-sale constraints. Our results show that in equilibrium, agents hold different portfolios. Our model is able to generate a time-varying risk premium of about 5.5% while maintaining a low risk free rate, thus suggesting a plausible explanation for the equity premium puzzle reported by Mehra and Prescott (1985).

The effect of the shift from HMO to PPO plans on the prevalence of hospital bad debt in the insured population: A case study in two Houston-area hospitals

In spite of the dramatic increase and general concern with U.S. hospital bad debt expense (AMNews, January 12, 2004; Philadelphia Business Journal, April 30, 2004; WSJ, July 23, 2004), there appears to be little available analysis of the precise sources and causes of its growth. This is particularly true in terms of the potential contribution of insured patients to bad debt expense in light of the recent shift in managed care from health maintenance organization (HMO) plans to preferred provider organization (PPO) plans (Kaiser Annual Survey Report, 2003). This study examines and attempts to explain the recent dramatic growth in bad debt expense by focusing on and analyzing data from two Houston-area hospital providers within one healthcare system. In contrast to prior studies in which self-pay was found to be the primary source of hospital bad debt expense (Saywell, R. M., et al., 1989; Zollinger, T. W., 1991; Weissman, Joel S., et al., 1999), this study hypothesizes that the growing hospital bad debt expense is mainly due to the shifting trend away from HMOs to PPOs as a conscious decision by employers to share costs with employees. Compared to HMO plans, the structure of PPOs includes higher co-pays, coinsurance, and deductibles for the patient-pay portion of medical bills, creating the potential for an increase in bad debt for hospital providers (from a case study). This bad debt expense has a greater impact in the community hospital than in the Texas Medical Center hospital. ^

Evolución de la Política Agrícola Brasileña : 1980-2010

El objetivo de este artículo es mostrar cuáles fueron las características de la política agrícola stricto sensu que favoreció el agronegocio y el desarrollo agropecuario en Brasil en los últimos 30 años. Para entender este proceso, se realiza una breve descripción de los instrumentos de política agrícola adoptados por el Gobierno en ese lapso, en función de la necesidad de adaptarse a las exigencias de la OMC y a las restricciones de la coyuntura. En la primera fase, de 1964 hasta 1985, se consiguió aumentar significativamente la producción agrícola garantizando el abastecimiento interno, que era el gran obstáculo verificado en el período pre-1964. La modernización agrícola fue conseguida con un gran costo social, pero cabe resaltar que esta cuestión no era una preocupación central de los gobiernos militares. En la segunda fase (1985-2001), cuando comienza la redemocratización, la política agrícola también se integra y es consistente con los objetivos macroeconómicos. Se buscaba en esa época disminuir el déficit fiscal y pagar la deuda externa, lo que fue conseguido con los grandes excedentes generados por el agronegocio a pesar de la disminución drástica de los subsidios agrícolas que fue necesario implementar. En el tercer período (2002-presente) se busca conciliar la promoción del agronegocio con la reducción de la pobreza, que era una agenda pendiente de la democratización y que había sido postergada en función de la necesidad de resolver los problemas fiscales e inflacionarios de la década del 80. Una vez resuelto el problema de la inflación, el Estado recupera su capacidad de planificación y comienza a atacar los problemas sociales.

Constraints on the magnitude and patterns of ocean cooling at the Last Glacial Maximum - Supplementary material

Observation-based reconstructions of sea surface temperature from relatively stable periods in the past, such as the Last Glacial Maximum, represent an important means of constraining climate sensitivity and evaluating model simulations. The first quantitative global reconstruction of sea surface temperatures during the Last Glacial Maximum was developed by the Climate Long-Range Investigation, Mapping and Prediction (CLIMAP) project in the 1970s and 1980s. Since that time, several shortcomings of that earlier effort have become apparent. Here we present an updated synthesis of sea surface temperatures during the Last Glacial Maximum, rigorously defined as the period between 23 and 19 thousand years before present, from the Multiproxy Approach for the Reconstruction of the Glacial Ocean Surface (MARGO) project. We integrate microfossil and geochemical reconstructions of surface temperatures and include assessments of the reliability of individual records. Our reconstruction reveals the presence of large longitudinal gradients in sea surface temperature in all of the ocean basins, in contrast to the simulations of the Last Glacial Maximum climate available at present.

Evolución de la Política Agrícola Brasileña : 1980-2010

El objetivo de este artículo es mostrar cuáles fueron las características de la política agrícola stricto sensu que favoreció el agronegocio y el desarrollo agropecuario en Brasil en los últimos 30 años. Para entender este proceso, se realiza una breve descripción de los instrumentos de política agrícola adoptados por el Gobierno en ese lapso, en función de la necesidad de adaptarse a las exigencias de la OMC y a las restricciones de la coyuntura. En la primera fase, de 1964 hasta 1985, se consiguió aumentar significativamente la producción agrícola garantizando el abastecimiento interno, que era el gran obstáculo verificado en el período pre-1964. La modernización agrícola fue conseguida con un gran costo social, pero cabe resaltar que esta cuestión no era una preocupación central de los gobiernos militares. En la segunda fase (1985-2001), cuando comienza la redemocratización, la política agrícola también se integra y es consistente con los objetivos macroeconómicos. Se buscaba en esa época disminuir el déficit fiscal y pagar la deuda externa, lo que fue conseguido con los grandes excedentes generados por el agronegocio a pesar de la disminución drástica de los subsidios agrícolas que fue necesario implementar. En el tercer período (2002-presente) se busca conciliar la promoción del agronegocio con la reducción de la pobreza, que era una agenda pendiente de la democratización y que había sido postergada en función de la necesidad de resolver los problemas fiscales e inflacionarios de la década del 80. Una vez resuelto el problema de la inflación, el Estado recupera su capacidad de planificación y comienza a atacar los problemas sociales.

Evolución de la Política Agrícola Brasileña : 1980-2010

El objetivo de este artículo es mostrar cuáles fueron las características de la política agrícola stricto sensu que favoreció el agronegocio y el desarrollo agropecuario en Brasil en los últimos 30 años. Para entender este proceso, se realiza una breve descripción de los instrumentos de política agrícola adoptados por el Gobierno en ese lapso, en función de la necesidad de adaptarse a las exigencias de la OMC y a las restricciones de la coyuntura. En la primera fase, de 1964 hasta 1985, se consiguió aumentar significativamente la producción agrícola garantizando el abastecimiento interno, que era el gran obstáculo verificado en el período pre-1964. La modernización agrícola fue conseguida con un gran costo social, pero cabe resaltar que esta cuestión no era una preocupación central de los gobiernos militares. En la segunda fase (1985-2001), cuando comienza la redemocratización, la política agrícola también se integra y es consistente con los objetivos macroeconómicos. Se buscaba en esa época disminuir el déficit fiscal y pagar la deuda externa, lo que fue conseguido con los grandes excedentes generados por el agronegocio a pesar de la disminución drástica de los subsidios agrícolas que fue necesario implementar. En el tercer período (2002-presente) se busca conciliar la promoción del agronegocio con la reducción de la pobreza, que era una agenda pendiente de la democratización y que había sido postergada en función de la necesidad de resolver los problemas fiscales e inflacionarios de la década del 80. Una vez resuelto el problema de la inflación, el Estado recupera su capacidad de planificación y comienza a atacar los problemas sociales.

Lake Baikal amphipods under climate change: Thermal constraints and ecological consequences, links to supplementary material

Lake Baikal, the world's most voluminous freshwater lake, has experienced unprecedented warming during the last decades. A uniquely diverse amphipod fauna inhabits the littoral zone and can serve as a model system to identify the role of thermal tolerance under climate change. This study aimed to identify sublethal thermal constraints in two of the most abundant endemic Baikal amphipods, Eulimnogammarus verrucosus and Eulimnogammarus cyaneus, and Gammarus lacustris, a ubiquitous gammarid of the Holarctic. As the latter is only found in some shallow isolated bays of the lake, we further addressed the question whether rising temperatures could promote the widespread invasion of this non-endemic species into the littoral zone. Animals were exposed to gradual temperature increases (4 week, 0.8 °C/d; 24 h, 1 °C/h) starting from the reported annual mean temperature of the Baikal littoral (6 °C). Within the framework of oxygen- and capacity-limited thermal tolerance (OCLTT), we used a nonlinear regression approach to determine the points at which the changing temperature-dependence of relevant physiological processes indicates the onset of limitation. Limitations in ventilation representing the first limits of thermal tolerance (pejus (= "getting worse") temperatures (Tp)) were recorded at 10.6 (95% confidence interval; 9.5, 11.7), 19.1 (17.9, 20.2), and 21.1 (19.8, 22.4) °C in E. verrucosus, E. cyaneus, and G. lacustris, respectively. Field observations revealed that E. verrucosus retreated from the upper littoral to deeper and cooler waters once its Tp was surpassed, identifying Tp as the ecological thermal boundary. Constraints in oxygen consumption at higher than critical temperatures (Tc) led to an exponential increase in mortality in all species. Exposure to short-term warming resulted in higher threshold values, consistent with a time dependence of thermal tolerance. In conclusion, species-specific limits to oxygen supply capacity are likely key in the onset of constraining (beyond pejus) and then life-threatening (beyond critical) conditions. Ecological consequences of these limits are mediated through behavioral plasticity in E. verrucosus. However, similar upper thermal limits in E. cyaneus (endemic, Baikal) and G. lacustris (ubiquitous, Holarctic) indicate that the potential invader G. lacustris would not necessarily benefit from rising temperatures. Secondary effects of increasing temperatures remain to be investigated.

Zooplankton distribution and migration in low-oxygen modewater eddies

The eastern tropical North Atlantic (ETNA) features a mesopelagic oxygen minimum zone (OMZ) at approximately 300-600 m depth. Here, oxygen concentrations rarely fall below 40 µmol O2 kg-1, but are expected to decline under future projections of global warming. The recent discovery of mesoscale eddies that harbour a shallow suboxic (<5 µmol O2 kg-1) OMZ just below the mixed layer could serve to identify zooplankton groups that may be negatively or positively affected by on-going ocean deoxygenation. In spring 2014, a detailed survey of a suboxic anticyclonic modewater eddy (ACME) was carried out near the Cape Verde Ocean Observatory (CVOO), combining acoustic and optical profiling methods with stratified multinet hauls and hydrography. The multinet data revealed that the eddy was characterized by an approximately 1.5-fold increase in total area-integrated zooplankton abundance. At nighttime, when a large proportion of acoustic scatterers is ascending into the upper 150 m, a drastic reduction in mean volume backscattering (Sv, shipboard ADCP, 75kHz) within the shallow OMZ of the eddy was evident compared to the nighttime distribution outside the eddy. Acoustic scatterers were avoiding the depth range between about 85 to 120 m, where oxygen concentrations were lower than approximately 20 µmol O2 kg-1, indicating habitat compression to the oxygenated surface layer. This observation is confirmed by time-series observations of a moored ADCP (upward looking, 300kHz) during an ACME transit at the CVOO mooring in 2010. Nevertheless, part of the diurnal vertical migration (DVM) from the surface layer to the mesopelagic continued through the shallow OMZ. Based upon vertically stratified multinet hauls, Underwater Vision Profiler (UVP5) and ADCP data, four strategies have been identified to be followed by zooplankton in response to the eddy OMZ: i) shallow OMZ avoidance and compression at the surface (e.g. most calanoid copepods, euphausiids), ii) migration to the shallow OMZ core during daytime, but paying O2 debt at the surface at nighttime (e.g. siphonophores, Oncaea spp., eucalanoid copepods), iii) residing in the shallow OMZ day and night (e.g. ostracods, polychaetes), and iv) DVM through the shallow OMZ from deeper oxygenated depths to the surface and back. For strategy i), ii) and iv), compression of the habitable volume in the surface may increase prey-predator encounter rates, rendering zooplankton and micronekton more vulnerable to predation and potentially making the eddy surface a foraging hotspot for higher trophic levels. With respect to long-term effects of ocean deoxygenation, we expect avoidance of the mesopelagic OMZ to set in if oxygen levels decline below approximately 20 µmol O2 kg-1. This may result in a positive feedback on the OMZ oxygen consumption rates, since zooplankton and micronekton respiration within the OMZ as well as active flux of dissolved and particulate organic matter into the OMZ will decline.

Sedimentological investigations and age constraints of sediment cores from the outer Abbot trough, Amundsen Sea shelf

Knowing the extent of the West Antarctic Ice Sheet (WAIS) at the Last Glacial Maximum (LGM) is crucial for initiating and calibrating numerical ice sheet models that can predict future ice-sheet change and contributions to sea level. However, empirical data are lacking for key areas of outer continental shelves, where the LGM-WAIS must have terminated. We present detailed marine geophysical and geological data documenting an up to ~12 m-thick sequence of glaciomarine sediments within a relict glacial trough in the outer parts of the Amundsen Sea Embayment. Continuous deposition must have persisted here since at least >40 ka BP, pre-dating the established LGM by >13,000 years. Observations constrain the LGM grounding line to a distinct grounding-zone wedge ~100 km inland from the continental shelf edge. Thus, a substantial shelf area (~6000 km**2) remained ice free through the last glacial cycle.

Unravelling the moisture sources of the Alpine Glaciers using tunnel valleys as constraints

A lack of archives has impeded reconstructions of moisture pathways for past glaciations in the European Alps. Here, we focus on the confluence area of two palaeoglaciers in the Swiss Plateau that were sourced on the northern (Aare glacier) and southern sides (Valais glacier) of the European Alps. We mapped tunnel valleys in the region using a drilling database, based on which we inferred the relative extent of each glacier c. 270 ka ago when the valleys were formed. We then compared this situation with that of the LGM. We found that, while the Valais glacier expanded farther into the foreland than the Aare glacier during the LGM, the opposite was the case c. 270 ka ago. We also found that LGM glaciers were non-erosive in the distal foreland. These contrasts in extents and erosional efficiencies imply differences in moisture pathways between the LGM and the time when the tunnel valleys were formed.