Network externalities across financial institutions

We propose and estimate a financial distress model that explicitly accounts for the interactions or spill-over effects between financial institutions, through the use of a spatial continuity matrix that is build from financial network data of inter bank transactions. Such setup of the financial distress model allows for the empirical validation of the importance of network externalities in determining financial distress, in addition to institution specific and macroeconomic covariates. The relevance of such specification is that it incorporates simultaneously micro-prudential factors (Basel 2) as well as macro-prudential and systemic factors (Basel 3) as determinants of financial distress. Results indicate network externalities are an important determinant of financial health of a financial institutions. The parameter that measures the effect of network externalities is both economically and statistical significant and its inclusion as a risk factor reduces the importance of the firm specific variables such as the size or degree of leverage of the financial institution. In addition we analyze the policy implications of the network factor model for capital requirements and deposit insurance pricing.

Economic shocks and crime: evidence from the crash of ponzi schemes

In November 2008, Colombian authorities dismantled a network of Ponzi schemes, making hundreds of thousands of investors lose tens of millions of dollars throughout the country. Using original data on the geographical incidence of the Ponzi schemes, this paper estimates the impact of their break down on crime. We find that the crash of Ponzi schemes differentially exacerbated crime in affected districts. Confirming the intuition of the standard economic model of crime, this effect is only present in places with relatively weak judicial and law enforcement institutions, and with little access to consumption smoothing mechanisms such as microcredit. In addition, we show that, with the exception of economically-motivated felonies such as robbery, violent crime is not affected by the negative shock.

Desarrollo de un Modelo de Gestión de Riesgo de Crédito para instituciones de microfinanzas del Ecuador

La cartera vencida en el segmento de microcrédito evidenció una tendencia creciente desde el año 2011 hasta la actualidad. Cabe señalar que factores internos y externos han contribuido en el crecimiento de dicha cartera. Adicionalmente, el crecimiento de la cartera vencida tendrá una importante afectación en la IMF en los próximos años de mantenerse dicha tendencia creciente. Esta afectación se evidenciará en el crecimiento de las provisiones y el deterioro de los indicadores de liquidez y solvencia. El alcance del presente estudio comprende la estructuración del modelo de gestión de riesgo de crédito para instituciones de microfinanzas, el cual se basa en la adopción de técnicas estadísticas discriminantes en el proceso de concesión de microcréditos. La hipótesis señala que el modelo de gestión de riesgo de crédito para IMF, el cual comprende la estructuración del scoring de crédito de comportamiento como herramienta que segmenta el mercado objetivo; la adopción de controles internos en las etapas del proceso de concesión de microcréditos (promoción, verificación y evaluación); y la adopción de la Unidad Centralizada de Aprobación permitirán administrar el riesgo de crédito en la IMF en el Ecuador. El objetivo principal es estructurar el modelo de gestión de riesgo de crédito para IMF, mismo que se adapte al contexto del mercado financiero ecuatoriano. Los objetivos secundarios se detallan a continuación: Analizar la evolución de la cartera de microcrédito en el Ecuador. Estructurar el modelo de scoring de crédito de comportamiento. Analizar debilidades en la metodología tradicional de microcrédito con el fin de implementar controles internos. Estructurar un modelo integral en la concesión de microcréditos. La metodología es un estudio bibliográfico de las mejores prácticas adoptadas en la gestión de riesgo de crédito. Adicionalmente, es una recopilación de buenas prácticas implementadas en la concesión de microcréditos en las Instituciones Financieras del Ecuador.

Transpolar voltage and polar cap flux during the substorm cycle and steady convection events

Transpolar voltages observed during traversals of the polar cap by the Defense Meteorological Satellite Program (DMSP) F-13 spacecraft during 2001 are analyzed using the expanding-contracting polar cap model of ionospheric convection. Each of the 10,216 passes is classified by its substorm phase or as a steady convection event (SCE) by inspection of the AE indices. For all phases, we detect a contribution to the transpolar voltage by reconnection in both the dayside magnetopause and in the crosstail current sheet. Detection of the IMF influence is 97% certain during quiet intervals and >99% certain during substorm/SCE growth phases but falls to 75% in substorm expansion phases: It is only 27% during SCEs. Detection of the influence of the nightside voltage is only 19% certain during growth phases, rising during expansion phases to a peak of 96% in recovery phases: During SCEs, it is >99%. The voltage during SCEs is dominated by the nightside, not the dayside, reconnection. On average, substorm expansion phases halt the growth phase rise in polar cap flux rather than reversing it. The main destruction of the excess open flux takes place during the 6- to 10-hour interval after the recovery phase (as seen in AE) and at a rate which is relatively independent of polar cap flux because the NENL has by then retreated to the far tail. The best estimate of the voltage associated with viscous-like transfer of closed field lines into the tail is around 10 kV.

Simultaneous observations of reconnection pulses at Cluster and their effects on the cusp aurora seen at Chinese Yellow River Station

While the Cluster spacecraft were located near the high-latitude magnetopause, between 10:10 and 10:40 UT on 16 January 2004, three typical flux transfer event (FTE) signatures were observed. During this interval, simultaneous and conjugated all-sky camera measurements, recorded at Yellow River Station, Svalbard, are available at 630.0 and 557.7nm that show poleward-moving auroral forms (PMAFs), consistent with magnetic reconnection at dayside magnetopause. Simultaneous FTEs seen at the magnetopause mainly move northward, but having duskward (eastward) and tailward velocity components, roughly consistent with the observed direction of motion of the PMAFs in all-sky images. Between the PMAFs meridional keograms, extracted from the all-sky images, show intervals of lower intensity aurora which migrate equatorward just before the PMAFs intensify. This is strong evidence for an equatorward eroding and poleward moving open-closed boundary (OCB) associated with a variable magnetopause reconnection rate under variable IMF conditions. From the durations of the PMAFs we infer that the evolution time of FTEs is 5-11 minutes from its origin on magnetopause to its addition to the polar cap.

Centennial changes in the heliospheric magnetic field and open solar flux: the consensus view from geomagnetic data and cosmogenic isotopes and its implications

Svalgaard and Cliver (2010) recently reported a consensus between the various reconstructions of the heliospheric field over recent centuries. This is a significant development because, individually, each has uncertainties introduced by instrument calibration drifts, limited numbers of observatories, and the strength of the correlations employed. However, taken collectively, a consistent picture is emerging. We here show that this consensus extends to more data sets and methods than reported by Svalgaard and Cliver, including that used by Lockwood et al. (1999), when their algorithm is used to predict the heliospheric field rather than the open solar flux. One area where there is still some debate relates to the existence and meaning of a floor value to the heliospheric field. From cosmogenic isotope abundances, Steinhilber et al. (2010) have recently deduced that the near-Earth IMF at the end of the Maunder minimum was 1.80 ± 0.59 nT which is considerably lower than the revised floor of 4nT proposed by Svalgaard and Cliver. We here combine cosmogenic and geomagnetic reconstructions and modern observations (with allowance for the effect of solar wind speed and structure on the near-Earth data) to derive an estimate for the open solar flux of (0.48 ± 0.29) × 1014 Wb at the end of the Maunder minimum. By way of comparison, the largest and smallest annual means recorded by instruments in space between 1965 and 2010 are 5.75 × 1014 Wb and 1.37 × 1014 Wb, respectively, set in 1982 and 2009, and the maximum of the 11 year running means was 4.38 × 1014 Wb in 1986. Hence the average open solar flux during the Maunder minimum is found to have been 11% of its peak value during the recent grand solar maximum.

Simultaneous observations of reconnection pulses at Cluster and their effects on the cusp aurora observed at the Chinese Yellow River station

While the Cluster spacecraft were located near the high-latitude magnetopause, between 1010 and 1040 UT on 16 January 2004, three typical flux transfer event (FTE) signatures were observed. During this interval, simultaneous and conjugated all‐sky camera measurements, recorded at Yellow River Station, Svalbard, are available at 630.0 and 557.7 nm that show poleward‐moving auroral forms (PMAFs), consistent with magnetic reconnection at the dayside magnetopause. Simultaneous FTEs seen at the magnetopause mainly move northward, but having duskward (eastward) and tailward velocity components, roughly consistent with the observed direction of motion of the PMAFs in all‐sky images. Between the PMAFs meridional keograms, extracted from the all‐sky images, show intervals of lower intensity aurora which migrate equatorward just before the PMAFs intensify. This is strong evidence for an equatorward eroding and poleward moving open‐closed boundary associated with a variable magnetopause reconnection rate under variable IMF conditions. From the durations of the PMAFs, we infer that the evolution time of FTEs is 5–11 minutes from its origin on the magnetopause to its addition to the polar cap.

On the importance of interplanetary magnetic field (By)on polar cap patch formation

A number of poleward moving events were observed between 1130 and 1300 UT on 11 February 2004, during periods of southward interplanetary magnetic field (IMF), while the steerable antenna of the European Incoherent Scatter (EISCAT) Svalbard radar (ESR)and the Tromsø VHF radar pointed nearly northward at low elevation. In this interval, simultaneous SuperDARN CUTLASS Finland radar measurements showed poleward moving radar aurora forms (PMRAFs) which appeared very similar to the density enhancements observed by the ESR northward pointing antenna. These events appeared quasiperiodically with a period of about 10 min. Comparing the observations from the above three radars, it is inferred that there is an almost one‐to‐one correspondence between the poleward moving plasma concentration enhancements (PMPCEs) observed by the ESR and the VHF radar and the PMRAFs measured by the CUTLASS Finland radar. These observations are consistent with the interpretation that the polar cap patch material was generated by photoionization at subauroral latitudes and that the plasma was structured by bursts of magnetopause reconnection giving access to the polar cap. There is clear evidence that plasma structuring into patches was dependent on the variability in IMF |By|. The duration of these events implies that the average evolution time of the newly opened flux tubes from the subauroral region to the polar cap was about 33 min.

Predicting space climate change

The recent decline in the open magnetic flux of the Sun heralds the end of the Grand Solar Maximum (GSM) that has persisted throughout the space age, during which the largest‐fluence Solar Energetic Particle (SEP) events have been rare and Galactic Cosmic Ray (GCR) fluxes have been relatively low. In the absence of a predictive model of the solar dynamo, we here make analogue forecasts by studying past variations of solar activity in order to evaluate how long‐term change in space climate may influence the hazardous energetic particle environment of the Earth in the future. We predict the probable future variations in GCR flux, near‐Earth interplanetary magnetic field (IMF), sunspot number, and the probability of large SEP events, all deduced from cosmogenic isotope abundance changes following 24 GSMs in a 9300‐year record.

Inner plasma structure of the low-latitude reconnection layer

We report a clear transition through a reconnection layer at the low-latitude magnetopause which shows a complete traversal across all reconnected field lines during northwestward interplanetary magnetic field (IMF) conditions. The associated plasma populations confirm details of the electron and ion mixing and the time history and acceleration through the current layer. This case has low magnetic shear with a strong guide field and the reconnection layer contains a single density depletion layer on the magnetosheath side which we suggest results from nearly field-aligned magnetosheath flows. Within the reconnection boundary layer, there are two plasma boundaries, close to the inferred separatrices on the magnetosphere and magnetosheath sides (Ssp and Ssh) and two boundaries associated with the Alfvén waves (or Rotational Discontinuities, RDsp and RDsh). The data are consistent with these being launched from the reconnection site and the plasma distributions are well ordered and suggestive of the time elapsed since reconnection of the field lines observed. In each sub-layer between the boundaries the plasma distribution is different and is centered around the current sheet, responsible for magnetosheath acceleration. We show evidence for a velocity dispersion effect in the electron anisotropy that is consistent with the time elapsed since reconnection. In addition, new evidence is presented for the occurrence of partial reflection of magnetosheath electrons at the magnetopause current layer.

Comparison of the open-closed separatrix in a global magnetospheric simulation with observations: the role of the ring current

The development of global magnetospheric models, such as Space Weather Modeling Framework (SWMF), which can accurately reproduce and track space weather processes has high practical utility. We present an interval on 5 June 1998, where the location of the polar cap boundary, or open-closed field line boundary (OCB), can be determined in the ionosphere using a combination of instruments during a period encompassing a sharp northward to southward interplanetary field turning. We present both point- and time-varying comparisons of the observed and simulated boundaries in the ionosphere and find that when using solely the coupled ideal magnetohydrodynamic magnetosphere-ionosphere model, the rate of change of the OCB to a southward turning of the interplanetary field is significantly faster than that computed from the observational data. However, when the inner magnetospheric module is incorporated, the modeling framework both qualitatively, and often quantitatively, reproduces many elements of the studied interval prior to an observed substorm onset. This result demonstrates that the physics of the inner magnetosphere is critical in shaping the boundary between open and closed field lines during periods of southward interplanetary magnetic field (IMF) and provides significant insight into the 3-D time-dependent behavior of the Earth's magnetosphere in response to a northward-southward IMF turning. We assert that during periods that do not include the tens of minutes surrounding substorm expansion phase onset, the coupled SWMF model may provide a valuable and reliable tool for estimating both the OCB and magnetic field topology over a wide range of latitudes and local times.

Reconstruction of geomagnetic activity and near-Earth interplanetary conditions over the past 167 yr – Part 1: A new geomagnetic data composite

We present a new composite of geomagnetic activity which is designed to be as homogeneous in its construction as possible. This is done by only combining data that, by virtue of the locations of the source observatories used, have similar responses to solar wind and IMF (interplanetary magnetic field) variations. This will enable us (in Part 2, Lockwood et al., 2013a) to use the new index to reconstruct the interplanetary magnetic field, B, back to 1846 with a full analysis of errors. Allowance is made for the effects of secular change in the geomagnetic field. The composite uses interdiurnal variation data from Helsinki for 1845–1890 (inclusive) and 1893–1896 and from Eskdalemuir from 1911 to the present. The gaps are filled using data from the Potsdam (1891–1892 and 1897–1907) and the nearby Seddin observatories (1908–1910) and intercalibration achieved using the Potsdam–Seddin sequence. The new index is termed IDV(1d) because it employs many of the principles of the IDV index derived by Svalgaard and Cliver (2010), inspired by the u index of Bartels (1932); however, we revert to using one-day (1d) means, as employed by Bartels, because the use of near-midnight values in IDV introduces contamination by the substorm current wedge auroral electrojet, giving noise and a dependence on solar wind speed that varies with latitude. The composite is compared with independent, early data from European-sector stations, Greenwich, St Petersburg, Parc St Maur, and Ekaterinburg, as well as the composite u index, compiled from 2–6 stations by Bartels, and the IDV index of Svalgaard and Cliver. Agreement is found to be extremely good in all cases, except two. Firstly, the Greenwich data are shown to have gradually degraded in quality until new instrumentation was installed in 1915. Secondly, we infer that the Bartels u index is increasingly unreliable before about 1886 and overestimates the solar cycle amplitude between 1872 and 1883 and this is amplified in the proxy data used before 1872. This is therefore also true of the IDV index which makes direct use of the u index values.

Reconstruction of geomagnetic activity and near-Earth interplanetary conditions over the past 167 yr – Part 2: A new reconstruction of the interplanetary magnetic field

We present a new reconstruction of the interplanetary magnetic field (IMF, B) for 1846–2012 with a full analysis of errors, based on the homogeneously constructed IDV(1d)composite of geomagnetic activity presented in Part 1 (Lockwood et al., 2013a). Analysis of the dependence of the commonly used geomagnetic indices on solar wind parameters is presented which helps explain why annual means of interdiurnal range data, such as the new composite, depend only on the IMF with only a very weak influence of the solar wind flow speed. The best results are obtained using a polynomial (rather than a linear) fit of the form B = χ · (IDV(1d) − β)α with best-fit coefficients χ = 3.469, β = 1.393 nT, and α = 0.420. The results are contrasted with the reconstruction of the IMF since 1835 by Svalgaard and Cliver (2010).

Implications of the recent low solar minimum for the solar wind during the Maunder minimum

The behavior of the Sun and near-Earth space during grand solar minima is not understood; however, the recent long and low minimum of the decadal-scale solar cycle gives some important clues, with implications for understanding the solar dynamo and predicting space weather conditions. The speed of the near-Earth solar wind and the strength of the interplanetary magnetic field (IMF) embedded within it can be reliably reconstructed for before the advent of spacecraft monitoring using observations of geomagnetic activity that extend back to the mid-19th century. We show that during the solar cycle minima around 1879 and 1901 the average solar wind speed was exceptionally low, implying the Earth remained within the streamer belt of slow solar wind flow for extended periods. This is consistent with a broader streamer belt, which was also a feature of the recent low minimum (2009), and yields a prediction that the low near-Earth IMF during the Maunder minimum (1640-1700), as derived from models and deduced from cosmogenic isotopes, was accompanied by a persistent and relatively constant solar wind of speed roughly half the average for the modern era.

Reconstruction of geomagnetic activity and near-Earth interplanetary conditions over the past 167 yr - Part 3: improved representation of solar cycle 11

Svalgaard (2014) has recently pointed out that the calibration of the Helsinki magnetic observatory’s H component variometer was probably in error in published data for the years 1866–1874.5 and that this makes the interdiurnal variation index based on daily means, IDV(1d), (Lockwood et al., 2013a), and the interplanetary magnetic field strength derived from it (Lockwood et al., 2013b), too low around the peak of solar cycle 11. We use data from the modern Nurmijarvi station, relatively close to the site of the original Helsinki Observatory, to confirm a 30% underestimation in this interval and hence our results are fully consistent with the correction derived by Svalgaard. We show that the best method for recalibration uses the Helsinki Ak(H) and aa indices and is accurate to ±10 %. This makes it preferable to recalibration using either the sunspot number or the diurnal range of geomagnetic activity which we find to be accurate to ±20 %. In the case of Helsinki data during cycle 11, the two recalibration methods produce very similar corrections which are here confirmed using newly digitised data from the nearby St Petersburg observatory and also using declination data from Helsinki. However, we show that the IDV index is, compared to later years, too similar to sunspot number before 1872, revealing independence of the two data series has been lost; either because the geomagnetic data used to compile IDV has been corrected using sunspot numbers, or vice versa, or both. We present corrected data sequences for both the IDV(1d) index and the reconstructed IMF (interplanetary magnetic field).We also analyse the relationship between the derived near-Earth IMF and the sunspot number and point out the relevance of the prior history of solar activity, in addition to the contemporaneous value, to estimating any “floor” value of the near-Earth interplanetary field.