A note on convergence of Peck-Shell and Green-Lin mechanisms in the Diamond-Dybvig model

We study the effects of population size in the Peck-Shell analysis of bank runs. We find that a contract featuring equal-treatment for almost all depositors of the same type approximates the optimum. Because the approximation also satisfies Green-Lin incentive constraints, when the planner discloses positions in the queue, welfare in these alternative specifications are sandwiched. Disclosure, however, it is not needed since our approximating contract is not subject to runs.

The fragility of two monetary regimes: The European Monetary System and the Eurozone. National Bank of Belgium Working Paper No. 243, October 2013

The purpose of these working papers is to promote the circulation of research results (Research Series) and analytical studies (Documents Series) made within the National Bank of Belgium or presented by external economists in seminars, conferences and conventions organised by the Bank. The aim is therefore to provide a platform for discussion. The opinions expressed are strictly those of the authors and do not necessarily reflect the views of the National Bank of Belgium.

Enriching information to prevent bank runs

Sequential service in the banking sector, as modeled by Diamond and Dybvig (1983), is a barrier to full insurance and potential source of financial fragility against which deposit insurance is infeasible (Wallace, 1988). In this paper, we pursue a different perspective, viewing the sequence of contacts as opportunities to extract information through a larger message space with commitment to richer promises. As we show, if preferences satisfy a separating property then the desired elimination of dominated strategies (Green and Lin, 2003) occurs even when shocks are correlated. In this manner the sequential service promotes stability.

Financial fragility, trade credit and contagion effects during the crisis: a spatial econometric approach to firm-level data

The number of distressed manufacturing firms increased sharply during recessionary phase 2009-13. Financial indebtness traditionally plays a key role in assessing firm solvency but contagion effects that originate from the supply chain are usually neglected in literature. Firm interconnections, captured via the trade credit channel, represent a primary vehicle of individual shocks’ propagation, especially during an economic downturn, when liquidity tensions arise. A representative sample of 11,920 Italian manufacturing firms is considered to model a two-step econometric design, where chain reactions in terms of trade credit accumulation (i.e. default of payments to suppliers) are primarily analyzed by resorting to a spatial autoregressive approach (SAR). Spatial interactions are modeled based on a unique dataset of firm-to-firm transactions registered before the outbreak of the crisis. The second step in instead a binary outcome model where trade credit chains are considered together with data on the bank-firm relationship to assess determinants of distress likelihoods in 2009-13. Results show that outstanding trade debt is affected by the liquidity position of a firm and by positive spatial effects. Trade credit chain reactions are found to exert, in turn, a positive impact on distress likelihoods during the crisis. The latter effect is comparable in magnitude to the one exerted by individual financial rigidity, and stresses the importance to include complex interactions between firms in the analysis of the solvency behavior.

ECB Policy and Eurozone Fragility: Was De Grauwe Right? CEPS Working Document No. 397, June 2014

Paul De Grauwe’s fragility hypothesis states that member countries of a monetary union such as the eurozone are highly vulnerable to a self-fulfilling mechanism by which the efforts of investors to avoid losses from default can end up triggering the very default they fear. The authors test this hypothesis by applying an eclectic methodology to a time window around Mario Draghi’s “whatever it takes” (to keep the eurozone on firm footing) pledge on 26 July 2012. This pledge was soon followed by the announcement of the Outright Monetary Transactions (OMT) programme (the prospective and conditional purchase by the European Central Bank of sovereign bonds of eurozone countries having difficulty issuing debt). The principal components of eurozone credit default swap spreads validate this choice of time frame. An event study reveals significant pre announcement contagion emanating from Spain to Italy, Belgium, France and Austria. Furthermore, time-series regression confirms frequent clusters of large shocks affecting the credit default swap spreads of the four eurozone countries but solely during the pre-announcement period. The findings of this report support the fragility hypothesis for the eurozone and endorse the Outright Monetary Transactions programme.

What lies beneath? : The pattern and abundance of the subterranean tuber bank of the invasive liana cat’s claw creeper, Macfadyena unguis-cati (Bignoniaceae)

Cat’s claw creeper, Macfadyena unguis-cati (L.) Gentry (Bignoniaceae) is a major environmental weed of riparian areas, rainforest communities and remnant natural vegetation in coastal Queensland and New South Wales, Australia. In densely infested areas, it smothers standing vegetation, including large trees, and causes canopy collapse. Quantitative data on the ecology of this invasive vine are generally lacking. The present study examines the underground tuber traits of M. unguis-cati and explores their links with aboveground parameters at five infested sites spanning both riparian and inland vegetation. Tubers were abundant in terms of density (~1000 per m2), although small in size and low in level of interconnectivity. M. unguis-cati also exhibits multiple stems per plant. Of all traits screened, the link between stand (stem density) and tuber density was the most significant and yielded a promising bivariate relationship for the purposes of estimation, prediction and management of what lies beneath the soil surface of a given M. unguis-cati infestation site. The study also suggests that new recruitment is primarily from seeds, not from vegetative propagation as previously thought. The results highlight the need for future biological-control efforts to focus on introducing specialist seed- and pod-feeding insects to reduce seed-output.

A restrike waveform predictive model for shunt capacitor bank switching with point-on-wave recommendation

Circuit-breakers (CBs) are subject to electrical stresses with restrikes during capacitor bank operation. Stresses are caused by the overvoltages across CBs, the interrupting currents and the rate of rise of recovery voltage (RRRV). Such electrical stresses also depend on the types of system grounding and the types of dielectric strength curves. The aim of this study is to demonstrate a restrike waveform predictive model for a SF6 CB that considered the types of system grounding: grounded and non-grounded and the computation accuracy comparison on the application of the cold withstand dielectric strength and the hot recovery dielectric strength curve including the POW (point-on-wave) recommendations to make an assessment of increasing the CB remaining life. The simulation of SF6 CB stresses in a typical 400 kV system was undertaken and the results in the applications are presented. The simulated restrike waveforms produced with the identified features using wavelet transform can be used for restrike diagnostic algorithm development with wavelet transform to locate a substation with breaker restrikes. This study found that the hot withstand dielectric strength curve has less magnitude than the cold withstand dielectric strength curve for restrike simulation results. Computation accuracy improved with the hot withstand dielectric strength and POW controlled switching can increase the life for a SF6 CB.

By the day nurses bank up in a casual pool!

We suspect that the array of silly names used to refer to temporary staff worldwide may be indicative of the extent to which these nurses have been relegated to, and we would argue, remain in, a type of underclass – relatively unsupported by employers in terms of professional practice and ipso facto excluded from contributing professionally to team work, practice development, clinical governance and evidence based practice. This may be acceptable to some but in a climate of risk averseness and in the interests of strategic planning we would suggest it is an accident waiting to happen. The recent UK Royal College of Nursing (RCN) (Ball & Pike, 2006) survey of bank and agency nurses brings a welcome focus on a group of nurses that make a significant contribution to the smooth running of health services in many countries.

The Galapagos Islands and Darwin's (en)tangled bank

The body of the article concerns itself with the vulnerability of islands and focuses on the Galapagos Archipelago where the author spent three years studying flamingoes and flightless cormorants.The article suggests practical, simple behavioural changes that individuals might adopt to help increase biodiversity and extend natural corridors and islands of vegetation throughout cities and suburbs. It will ask some questions about human motives for behaviour change and moral decisions.

In the bank or on the ground : an examination of financial reserves in Australian international aid organisations

This study contributes to the understanding of the contribution of financial reserves to sustaining nonprofit organisations. Recognising the limited recent Australian research in the area of nonprofit financial vulnerability, it specifically examines financial reserves held by signatories to the Code of Conduct of the Australian Council for International Development (ACFID) for the years 2006 to 2010. As this period includes the Global Financial Crisis, it presents a unique opportunity to observe the role of savings in a period of heightened financial threats to sustainability. The need for nonprofit entities to maintain reserves, while appearing intuitively evident, is neither unanimously accepted nor supported by established theoretic constructs. Some early frameworks attempt to explain the savings behaviour of nonprofit organisations and its role in organisational sustainability. Where researchers have considered the issue, its treatment has usually been either purely descriptive or alternatively, peripheral to a broader attempt to predict financial vulnerability. Given the importance of nonprofit entities to civil society, the sustainability of these organisations during times of economic contraction, such as the recent Global Financial Crisis, is a significant issue. Widespread failure of nonprofits, or even the perception of failure, will directly affect, not only those individuals who access their public goods and services, but would also have impacts on public confidence in both government and the sectors’ ability to manage and achieve their purpose. This study attempts to ‘shine a light’ on the paradox inherent in considering nonprofit savings. On the one hand, a public prevailing view is that nonprofit organisations should not hoard and indeed, should spend all of their funds on the direct achievement of their purposes. Against this, is the commonsense need for a financial buffer if only to allow for the day to day contingencies of pay rises and cost increases. At the entity level, the extent of reserves accumulated (or not) is an important consideration for Management Boards. The general public are also interested in knowing the level of funds held by nonprofits as a measure of both their commitment to purpose and as an indicator of their effectiveness. There is a need to communicate the level and prevalence of reserve holdings, balancing the prudent hedging of uncertainty against a sense of resource hoarding in the mind of donors. Finally, funders (especially governments) are interested in knowing the appropriate level of reserves to facilitate the ongoing sustainability of the sector. This is particularly so where organisations are involved in the provision of essential public goods and services. At a scholarly level, the study seeks to provide a rationale for this behaviour within the context of appropriate theory. At a practical level, the study seeks to give an indication of the drivers for savings, the actual levels of reserves held within the sector studied, as well as an indication as to whether the presence of reserves did mitigate the effects of financial turmoil during the Global Financial Crisis. The argument is not whether there is a need to ensure sustainability of nonprofits, but rather how it is to be done and whether the holding of reserves (net assets) is an essential element is achieving this. While the study offers no simple answers, it does appear that the organisations studied present as two groups, the ‘savers’ who build reserves and keep ‘money in the bank’ and ‘spender-delivers’ who put their resources ‘on the ground’. To progress an understanding of this dichotomy, the study suggests a need to move from its current approach to one which needs to more closely explore accounts based empirical donor attitude and nonprofit Management Board strategy.