Integrating industrial and financial analysis into a rating methodology for corporate risk detection: the case of the Vicenza manufacturing firms.

Banks weakness derived from rating models that produce cyclical effects on credit availability and are not able to anticipate anti-cyclical firms’ trends. The aim of the paper is to develop a framework for an original rating methodology derived from integration of industrial and financial analysis able to identify best performers in crisis scenarios (anti-cyclically). Industrial analysis is based on firm heterogeneity approaches to measure three dimensions of analysis: innovation, internationalization and growth. Financial analysis focuses on operational return and risks measures and develops an integrated classification of firms using standardized XBRL financial data. Further integration of the two methodologies is used to create the effective set of information needed for rating system

Interdependencies between Leverage and Capital Ratios in the Banking Sector of the Czech Republic

In this paper we discuss the implications of the Basel III requirements on the leverage ratio for the banking sector in the Czech Republic. We identify the potential binding constraints from regulatory limits and analyze the interactions among leverage and capital ratios over the country’s economic cycle (during the period 2007-2014). The historical data confirm stronger capital ratios of the banks and an overall solid leverage level with only 5% of the total historical observations being lower than the regulatory recommendations. By analyzing the components of ratios, we conclude that the banks are focusing more on the optimization of risk weighted assets. Strong co-movement patterns between leverage and assets point to the active management of leverage as a means of expanding and contracting the size of balance sheets and maximizing the utility of the capital. The analysis of correlation patterns among the variables indicates that the total assets (and exposure) in contrast to Tier 1 capital are the main contributors to the cyclical movements in the leverage. The leverage and the total assets also demonstrate a weak correlation with GDP, but a strong co-movement with loans to the private sector

Bank Leverage Ratios and Financial Stability: A Micro- and Macroprudential Perspective

Bank leverage ratios have made an impressive and largely unopposed return; they are mostly used alongside risk-weighted capital requirements. The reasons for this return are manifold, and they are not limited to the fact that bank equity levels in the wake of the global financial crisis (GFC) were exceptionally thin, necessitating a string of costly bailouts. A number of other factors have been equally important; these include, among others, the world's revulsion with debt following the GFC and the eurozone crisis, and the universal acceptance of Hyman Minsky's insights into the nature of the financial system and its role in the real economy. The best examples of the causal link between excessive debt, asset bubbles, and financial instability are the Spanish and Irish banking crises, which resulted from nothing more sophisticated than straightforward real estate loans. Bank leverage ratios are primarily seen as a microprudential measure that intends to increase bank resilience. Yet in today's environment of excessive liquidity due to very low interest rates and quantitative easing, bank leverage ratios should also be viewed as a key part of the macroprudential framework. In this context, this paper discusses the role of leverage ratios as both microprudential and macroprudential measures. As such, it explains the role of the leverage cycle in causing financial instability and sheds light on the impact of leverage restraints on good bank governance and allocative efficiency

The German Banking System and the Global Financial Crisis: Causes, Developments and Policy Responses

Germany's banking sector has been severely hit by the global financial crisis. In a German context as of February, 2009, this paper reviews briefly the structure of the banking industry, quantifies effects of the crisis on banks and surveys responses of economic policy. It is argued that policy design needs to enhance transparency and enforce the liability principle. In addition, economic policy should not eclipse principles of competition policy.Der deutsche Bankensektor ist durch die internationale Finanzkrise schwer getroffen. Auf Deutschland und die im Februar 2009 verfügbaren Informationen bezogen, werden die Struktur des Bankensektors kurz umrissen, die Effekte auf die Banken quantifiziert und wirtschaftspolitische Reaktionen aufgezeigt. Ziel der Wirtschaftspolitik ist es, die Transparenz zu erhöhen und das Haftungsprinzip durchzusetzen. Darüber hinaus sollten Grundsätze der Wettbewerbspolitik nicht in den Hintergrund geraten

Unwilling Subjects of Financialization

This paper seeks to advance debates about the financialization of housing by focusing on the emergence of rental housing as a frontier for financialization, a dynamic that is increasingly relevant since the global financial crisis. Situated in New York City, the research focuses on an aggressive wave of investment in affordable, rent-stabilized properties by private equity firms, their efforts to release value from these properties, and the implications of the 2008 financial crisis for their investment strategies and thus for tenants’ experience of home. Through detailed empirical analysis tracing the connections between how rental housing has been constituted as a new site for private equity investment globally, the local conditions facilitating this process in New York, and how it reshaped everyday life for tenants, the article theorizes tenants as unwilling subjects of financialization. Yet unwillingness does not necessarily translate to being overtaken; it also connotes reluctance, and indeed struggle. This novel conceptualization highlights the ways in which financialization meets with dissent, and its necessarily contingent and incomplete nature. The paper therefore moves forward the wider intellectual project of understanding financialization not as a monolithic and inevitable process, but as one characterized by resistance from without and contradiction from within

Securitization, Deregulation, Economic Stability, And Financial Crisis, Part II - Deregulation, the Financial Crisis, and Policy Implications

This study analyzes the trends in the financial sector over the past 30 years, and argues that unsupervised financial innovations and lenient government regulation are at the root of the current financial crisis and recession. Combined with a long period of economic expansion during which default rates were stable and low, deregulation and unsupervised financial innovations generated incentives to make risky financial decisions. Those decisions were taken because it was the only way for financial institutions to maintain market share and profitability. Thus, rather than putting the blame on individuals, this paper places it on an economic setup that requires the growing use of Ponzi processes during enduring economic expansion, and on a regulatory system that is unwilling to recognize (on the contrary, it contributes to) the intrinsic instability of market mechanisms. Subprime lending, greed, and speculation are merely aspects of the larger mechanisms at work. It is argued that we need to change the way we approach the regulation of financial institutions and look at what has been done in other sectors of the economy, where regulation and supervision are proactive and carefully implemented in order to guarantee the safety of society. The criterion for regulation and supervision should be neither Wall Street’s nor Main Street’s interests but rather the interests of the socioeconomic system. The latter requires financial stability if it’s to raise, durably, the standard of living of both Wall Street and Main Street. Systemic stability, not profits or homeownership, should be the paramount criterion for financial regulation, since systemic stability is required to maintain the profitability - and ultimately, the existence - of any capitalist economic entity. The role of the government is to continually counter the Ponzi tendencies of market mechanisms, even if they are (temporarily) improving standards of living, and to encourage economic agents to develop safe and reliable financial practices. - See also, Working Paper No. 573.1, 'Securitization, Deregulation, Economic Stability, and Financial Crisis, Part I: The Evolution of Securitization.

Motivations for Capital Controls and Their Effectiveness

We assess the motivations for changing capital controls and their effectiveness in India, a country with extensive and long-standing controls. We focus on the controls on foreign borrowing that can, in principle, be motivated by macroprudential concerns. We construct a fine-grained data set on capital control actions on foreign borrowing in India. Using event study methodology, we assess the factors that influence these capital control actions, the main factor being the exchange rate. Capital controls are tightened after appreciation, and eased after depreciation, of the exchange rate. Macroprudential concerns, measured by variables that capture systemic risk buildups, do not seem to be a factor shaping the use of capital controls. To assess the impact of controls, we use both event study and propensity score matching methodologies. Event study methodology suggests no impact of capital controls on most variables evaluated, but reveals limited evidence that capital controls relieve currency pressures in the short term. However, even this limited evidence disappears once selection bias is controlled for