The Role of Capital in Financial Institutions

This paper examines the role of capital in financial institutions. As the introductory article to a conference on the role of capital management in banking and insurance, it describes the authors' views of why capital is important, how market-generated capital requirements' differ from regulatory requirements and the form that regulatory requirements should take. It also examines the historical trends in bank capital, problems in measuring capital and some possible unintended consequences of capital requirements. According to the authors, the point of departure for all modern research on capital structure is the Modigliani-Miller (M&M, 1958) proposition that in a frictionless world of full information and complete markets, a firm s capital structure cannot affect its value. The authors suggest however, that financial institutions lack any plausible rationale in the frictionless world of M&M. Most of the past research on financial institutions has begun with a set of assumed imperfections, such as taxes, costs of financial distress, transactions costs, asymmetric information and regulation. Miller argues (1995) that these imperfections may not be important enough to overturn the M&M Proposition. Most of the other papers presented at this conference on capital take the view that the deviations from M&M s frictionless world are important, so that financial institutions may be able to enhance their market values by taking on an optimal amount of leverage. The authors highlight these positions in this article. The authors next examine why markets require' financial institutions to hold capital. They define this capital requirement' as the capital ratio that maximizes the value of the bank in the absence of regulatory capital requirements and all the regulatory mechanisms that are used to enforce them, but in the presence of the rest of the regulatory structure that protects the safety and soundness of banks. While the requirement differs for each bank, it is the ratio toward which each bank would tend to move in the long run in the absence of regulatory capital requirements. The authors then introduce imperfections into the frictionless world of M&M taxes and the costs of financial distress, transactions costs and asymmetric information problems and the regulatory safety net. The authors analysis suggests that departures from the frictionless M&M world may help explain market capital requirements for banks. Tax considerations tend to reduce market capital requirements , the expected costs of financial distress tend to raise these requirements , and transactions costs and asymmetric information problems may either increase or reduce the capital held in equilibrium. The federal safety net shields bank creditors from the full consequences of bank risk taking and thus tends to reduce market capital requirements . The paper then summarizes the historical evolution of bank capital ratios in the United States and the reasons regulators require financial institutions to hold capital. They suggest that regulatory capital requirements are blunt standards that respond only minimally to perceived differences in risk rather than the continuous prices and quantity limits set by uninsured creditors in response to changing perceptions of the risk of individual banks. The authors suggest an ideal system for setting capital standards but agree that it would be prohibitively expensive, if not impossible. Regulators lack precise estimates of social costs and benefits to tailor a capital requirement for each bank, and they cannot easily revise the requirements continuously as conditions change. The authors continue with suggestions for measuring regulatory capital more effectively. They suggest that a simple risk-based capital ratio is a relatively blunt tool for controlling bank risk-taking. The capital in the numerator may not always control bank moral hazard incentive; it is difficult to measure, and its measured value may be subject to manipulation by gains trading . The risk exposure in the denominator is also difficult to measure, corresponds only weakly to actual risk and may be subject to significant manipulation. These imprecisions worsen the social tradeoff between the externalities from bank failures and the quantity of bank intermediation. To keep bank risk to a tolerable level, capital standards must be higher on average than they otherwise would be if the capital ratios could be set more precisely, raising bank costs and reducing the amount of intermediation in the economy in the long run. Since actual capital standards are, at best, an approximation to the ideal, the authors argue that it should not be surprising that they may have had some unintended effects. They examine two unintended effects on bank portfolio risk or credit allocative inefficiencies. These two are the explosive growth of securitization and the so-called credit crunch by U.S. banks in the early 1990s. The authors show that capital requirements may give incentives for some banks to increase their risks of failure. Inaccuracies in setting capital requirements distort relative prices and may create allocative inefficiencies that divert financial resources from their most productive uses. During the 1980s, capital requirements may have created artificial incentives for banks to take off-balance sheet risk, and changes in capital requirements in the 1990s may have contributed to a credit crunch.

ISIPTA'07: Proceedings of the Fifth International Symposium on Imprecise Probability: Theories and Applications

B

A Roadmap for Promoting Women's Economic Empowerment

This document summarizes findings of 18 research studies commissioned across 4 categories (entrepreneurship, farming, wage employment, young women's employment) to find out what works to empower women, for whom (categories of women), and where (country scenarios). The Roadmap is designed to guide investments from private sector and public-private partnerships, and highlights 9 proven, 9 promising, and 6 high-potential interventions to increase women's productivity and earnings in developing countries

Comment Letters Received On the April 14, 1995 Exposure Draft of a Proposed Audit & Accounting Guide Not-for-Profit Organizations VOL. 2 (79-155);

https://egrove.olemiss.edu/aicpa_sop/1243/thumbnail.jp

The BG News January 15, 1988

The BGSU campus student newspaper January 15, 1988. Volume 70 - Issue 66https://scholarworks.bgsu.edu/bg-news/5742/thumbnail.jp

Checklists and illustrative financial statements for not-for-profit organizations : a financial accounting and reporting practice aid, June 2003 edition

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Teacher Reform in Indonesia: The Role of Politics and Evidence in Policy Making

Teacher Reform in Indonesia: The Role of Politics and Evidence in Policy Making is the result of seven years of collaborative effort between the Human Development Sector of the World Bank Indonesia country office and the Government of Indonesia. The Human Development Sector, led by Mae Chu Chang, produced over 50 independent background papers by Bank staff, government researchers, and international consultants, as well several major research projects including an impact evaluation and in-depth classroom observations. This synthesis report was prepared under the team leadership of Mae Chu Chang and included as mem- bers Samer Al-Samarrai, Andrew Ragatz, Joppe de Ree, Sheldon Shaeffer, and Ritchie Stevenson (co-authors) as well as Rina Arlianti, Susiana Iskandar, and Titie Hadiyati (contributors). Research assistance was provided by Shahnaz Arina, Megha Kapoor, Imam Setiawan, and Susie Sugiarti. Mary Anderson provided editorial support, and the graphic designer was Yvonne Armanto Ramali. \ud The production of this report, as well as the variety of research studies con- ducted over the past seven years on which the book is based, was generously supported by the Dutch Education Support Program (DESP) funded by the Government of the Kingdom of the Netherlands. The team is indebted to Arnold Vander Zanden (First Secretary Education, Royal Netherlands Embassy, Indonesia) for his strong support throughout the years for demand-driven and “just-in-time” policy work that has been carried out under DESP. Technical con- tributions from AusAID-supported consultants, Graham Dawson and John Bladen, are also acknowledged. \ud It should be noted that although inputs of various officials have been incorpo- rated into the report, the policy recommendations in this document do not necessarily reflect the policies of the Government of Indonesia, the Government of the Kingdom of the Netherlands, or the World Bank. \ud The team of authors who produced this report is grateful to the officials and staff of the Ministry of Education and Culture for their overall support. Special thanks are in order to Fasli Jalal, former Vice Minister of Education, who was the visionary behind the Teacher Law that inspired this report and a key supporter of many of the teacher management studies that contributed to it. The current Minister of Education and Culture, Mohammad Nuh; Vice Minister of Education, Musliar Kasim; the Special Advisor to the Minister, Taufik Hanafi; the Head of \ud the Board of Education and Culture, Human Resources Development and Quality Assurance for Education, Syawal Gultom; and the former Director General for Quality Improvement of Teacher and Education Personnel, Baedhowi, played major roles in using the evidence produced to improve the teacher regula- tions. The report also benefited greatly from the inputs of the Ministry of Religious Affairs, the National Development Planning Agency, the Ministry of State Administration Reform, the Ministry of Finance, and the Civil Service Agency, together with inputs of donor agencies that were received during various consultation meetings and policy forum discussions. Key government support came from the directors, the head of centers, and senior key staff of the Ministry responsible for teacher management, quality assurance, and teacher-related stud- ies: Sumarna Suryapranata, Surya Dharma, Hendarman, Unifah Rosyidi, Abi Sujak, Muchlas Samani, Anah Suhaenah, Gogot Suharwoto, Maria Widiani, Poppy Puspitawati, Dian Wahyuni, Santi Ambarukmi, E. Nurzaman, Giri Suryaatmana, Ahmad Dasuki, Bambang Indriyanto, Nugaan Yulia Wardhani Siregar, Hari Setiadi, Burhanudin Tola, Yendri Wirda Burhan, Simon Sili Sabon, Rahmawati, Handayani Sumarno, Rumtini, Yaya Zakaria, and M.S. Sembiring. \ud Insightful comments from stakeholders were provided by Lilian Rahman (Gorontalo district), Sulistiyo (Chair of the Teacher Association of Republic of Indonesia, PGRI), Sahiri Hermawan (PGRI), Arief Rahman (Chair of the Indonesian National Commission for UNESCO), Heri Akhmadi (a member of Parliament), Anies Baswedan (Rector of Paramadina University and Chair of Indonesia Mengajar), Hetty Herawati (Principal of SD Taruna Bangsa), Sudarwan Danim and Anthony Crocker (consultants at the Board of Education and Culture, Human Resources Development and Quality Assurance for Education), Agus Supriatman (Head of the Education Office, Karawang District), Nanda Suhanda (a member of the Karawang District Parliament), Obang Nurbayu (Head of PGRI, Karawang District), and Nanang Muchlis (Chair, Board of Education, Karawang District). \ud The report was improved by detailed feedback from the following principal reviewers: F. Halsey Rogers, Venkatesh Sundararaman, and Helen J. Craig (World Bank); Molly Lee (formerly UNESCO); and Tom Lowrie (Charles Sturt University). Helpful comments were also received from William Wallace, James A. Brumby, and Yasuhiko Matsuda (World Bank). The report was prepared under the guidance of Luis Benveniste, Sector Manager, East Asia and Pacific Region, and the support of Stefan Koeberle (Country Director for Indonesia)

Theory, Practice, and Nature In-between

In the summer of 1704, Antonio Vallisneri (1661–1730), the preeminent Italian physician and natural philosopher of his time, traveled with a “daring soul” and “trembling feet” across the “silent horrors” of the northern Apennines: down the hills south of Reggio Emilia to northern Tuscany and the western edge of his native land, the Province of Garfagnana. He then wrote a report of this adventure, the Primi Itineris per Montes Specimen Physico-Medicum (“Physico-medical example of a first journey through the mountains), and sent it to the Royal Society of London, hoping for its publication in Philosophical Transactions. Unfortunately this did not happen and the manuscript disappeared from sight. The original draft, however, survived in the State Archive of the Italian city of Reggio Emilia where it was found in 2009. With its exceptional array of geological, medical, geographical, technical, ethnographic, and historical data, the Primi Itineris Specimen is one of the earliest and most well-documented attempts to define a systematic approach to field research. Its frantically reworked pages and anxious marginal notes offer a new and precious opportunity to understand why and how experimental data and theories in the early modern period interacted and shaped the development of many crucial debates. These include the discovering of deep-time, the comprehension of geological phenomena (such as the hydrologic cycle and the origin of mountains and fossils), the perception of man’s place in nature, the constant search for new therapeutics, the tormented and charming relation between science and religion