Resolution of large complex financial organizations

The resolution of a large complex financial organization (LCFO) presents numerous problems, including organizational complexity, opacity of positions, and conflicting legal jurisdictions. Of particular concern is the potential impact of large derivatives books. Widespread adoption of laws permitting close-out of derivatives contracts exempts these contracts from the usual stays that provide time for the orderly resolution of claims by the courts. Thus, a potentially significant part of the LCFO's assets and liabilities are exempted from normal bankruptcy procedures, creating the potential for a disorderly dismemberment of an insolvent LCFO. Nonetheless, however inconvenient they may be for bankruptcy administrators, the closeout netting privileges enjoyed by derivatives are essential to reducing legal uncertainty, increasing liquidity, and minimizing the systemic impact of large failures. The solution advocated in this paper is for regulators to provide "facilitated private resolution" for dealing with systemically important financial institutions, along the lines of the Long-Term Capital Management workout and the "London Approach" practiced in the last century. To make this early intervention effective, consolidated supervision is needed to ensure that comprehensive information is available and intervention takes place while the firm is still solvent.Financial markets ; Bankruptcy

Towards Deterministic Communications in 6G Networks: State of the Art, Open Challenges and the Way Forward

Over the last decade, society and industries are undergoing rapid digitization that is expected to lead to the evolution of the cyber-physical continuum. End-to-end deterministic communications infrastructure is the essential glue that will bridge the digital and physical worlds of the continuum. We describe the state of the art and open challenges with respect to contemporary deterministic communications and compute technologies: 3GPP 5G, IEEE Time-Sensitive Networking, IETF DetNet, OPC UA as well as edge computing. While these technologies represent significant technological advancements towards networking Cyber-Physical Systems (CPS), we argue in this paper that they rather represent a first generation of systems which are still limited in different dimensions. In contrast, realizing future deterministic communication systems requires, firstly, seamless convergence between these technologies and, secondly, scalability to support heterogeneous (time-varying requirements) arising from diverse CPS applications. In addition, future deterministic communication networks will have to provide such characteristics end-to-end, which for CPS refers to the entire communication and computation loop, from sensors to actuators. In this paper, we discuss the state of the art regarding the main challenges towards these goals: predictability, end-to-end technology integration, end-to-end security, and scalable vertical application interfacing. We then present our vision regarding viable approaches and technological enablers to overcome these four central challenges. Key approaches to leverage in that regard are 6G system evolutions, wireless friendly integration of 6G into TSN and DetNet, novel end-to-end security approaches, efficient edge-cloud integrations, data-driven approaches for stochastic characterization and prediction, as well as leveraging digital twins towards system awareness.Comment: 22 pages, 8 figure

The Basle securitisation framework explained: the regulatory treatment of asset securitisation

The paper provides a comprehensive overview of the gradual evolution of the supervisory policy adopted by the Basle Committee for the regulatory treatment of asset securitisation. We carefully highlight the pathology of the new “securitisation framework” to facilitate a general understanding of what constitutes the current state of computing adequate capital requirements for securitised credit exposures. Although we incorporate a simplified sensitivity analysis of the varying levels of capital charges depending on the security design of asset securitisation transactions, we do not engage in a profound analysis of the benefits and drawbacks implicated in the new securitisation framework. JEL Klassifikation: E58, G21, G24, K23, L51. Forthcoming in Journal of Financial Regulation and Compliance, Vol. 13, No. 1

AGRICULTURE AND RELATED SECTORS IN THE CILSS COUNTRIES: PAST PERFORMANCE AND STRATEGIC CHOICES FOR THE FUTURE

The document identified five priority areas on which to focus future development plans and projects: 1) human resource development; 2)institutional capacity building; 3) rapid and sustainable development of agricultural production; 4) economic growth and diversification; 5) greater regional integration and ties to the world economy. Recognizing that several of these priorities reached beyond its mandate, CILSS recommended that other more qualified regional organizations (ECOWAS, UEMOA) assume their responsibilities in pursuing these objectives. This paper analyzes the past performance, potential for and challenges facing the agricultural sector in the Sahel, focusing on the factors critical to increasing household income and improving food security in the Sahel. It is divided in four parts.Industrial Organization,

Prudential Policy

This paper studies the rationale behind prudential policies in the banking sector. The main components of these prudential policies are deposit insurance, solvency regulations, and emergency liquidity assistance by the central bank, acting as a lender of last resort. We discuss the institutional arrangements that are necessary to limit the frequency and extent of individual bank failures as well as those of systemic banking crises.

Financial Crises: Nine Lessons from East Asia

The 1990s witnessed a surge in private capital flows to developing countries--and a surge in financial crises. The most severe and regionally extensive has (to date) been East Asia's. The last six years has produced a wealth of research that now allows us to abstract policy lessons from the East Asian crisis and the difficulties in implementing them. These lessons span crisis prevention, management and resolution, and building a new international financial architecture with a regional focus. Progress in these areas would have helped prevent, or at least minimize, both the East Asian crisis and more recent crises.Capital Flow; Capital; Developing Countries; Policy

Four Futures for Finance; A scenario study

This document presents four scenarios for the future of finance. The goal of our study is to imagine the future of finance and to identify challenges faced by policymakers in fighting systemic risk. It builds upon a tradition within the CPB to develop scenarios for policy analysis. We develop four scenarios for the future of finance. Our scenarios differ in two dimensions. First, to what extent soft information lies at the core of banks’ business. Second, to what extent scope economies exist between different banking activities. By combining these two dimensions, we obtain four scenarios: Isolated Islands, Big Banks, Competing Conglomerates, and Flat Finance. Market structure, market failures, and government failures vary between scenarios. These differences then translate into differences in the complexity of balance sheets, the ability to coordinate policy internationally, the information gap faced by regulators, the size of banks’ balance sheets, the tradability of banks’ assets, the level of interconnectedness, the potential for market discipline, and the threat of regulatory capture. As a result, each scenario calls for a different set of policies to combat systemic risk.

Extended shareholder liability for systematically important financial institutions

Regulators generally have tried to address the problems posed by the excessive risk-taking of Systemically Important Financial Institutions (SIFIs) by placing restrictions on the activities in which SIFIs engage. However, the complexity of these institutions makes such attempts necessarily imperfect. This Article proposes to address the problem at its very source, which is the incentives that SIFI owners have to push for excessive risk-taking by managers. Building on the traditional rule of “double liability,” we propose to modify the current (general) rule limiting the liability of SIFI shareholders to the amount of their initial investments in such companies. We propose replacing the extant limited liability regime with a new system that imposes additional liability over and above what SIFI shareholders already have invested in a preset amount that varies with a SIFI’s centrality in the financial network. Our liability regime has a number of advantages. First, by increasing shareholder exposure to downside risk, it discourages excessive risk-taking. At the same time, by placing a clearly defined ceiling on shareholders’ total liability exposure, it will not obliterate shareholders’ incentives to invest in the first place. Second, the liability to which shareholders are exposed is carefully tailored to the level of systemic risk that their institution creates. Thus, our rule induces shareholders to account for the negative externality SIFIs can impose without unduly stifling such financial institutions’ role within the financial system and in the wider economy. Third, as the amount of liability is clearly defined ex ante using the rigorous tools of network theory, our rule minimizes the influence of interest groups and the impact of idiosyncratic government decisions