Vulnerabilities and surveillance of the international financial system.

The International Banking and Finance Institute (IBFI) organised its fifth international monetary seminar from 12 to 16 May 2003 on the topic “Vulnerabilities and surveillance of the international financial system”. This seminar brought together 43 participants from the central banks of industrialised and emerging countries as well as from international institutions (BIS, IMF, OECD, FSF, etc.), and around 30 speakers from various central banks, international bodies and the private sector. The first two days were devoted to: – providing an overview of developments in the international environment, markets and the financial system including the insurance sector, which gave rise to a speech by a director at the French Insurance Association; – analysing the vulnerabilities of the banking and financial system, in particular those stemming from changes in market techniques and market participants’ behaviour; – analysing accounting and prudential issues arising from the implementation of the future interna tional solvency ratio and the introduction of the new international financial reporting standards; – examining current ideas on resolving international financial crises, with particular focus on the approach proposed by the Banque de France with a view to fostering a “Code of conduct” for the voluntary renegotiation between sovereign issuers and creditors, as well as the IMF’s point of view on the restructuring of sovereign debt, put forward by Anne Krueger, deputy managing director of the IMF, in a video-conference transmitted live from Washington 1. In the two days that followed, there ensued lively debate between the participants, who formed two workshops: one on the interactions between financial markets and monetary policy, and the other on the provisions of the New Basel Accord and the financial reporting standards and their impact on economic cycles 2. The first workshop was mainly organised around three topics: – central bank communication, in the areas of monetary policy, foreign exchange and financial stability; – methods of identifying vulnerabilities in financial systems; – links between price stability and financial stability. The second workshop focused on three issues: – the new financial reporting standards put forward by the International Accounting Standard Board and their implications for credit institutions, in particular with respect to the principle of prudence and the need to avoid introducing artificial volatility into accounts; – the future solvency ratio applicable to credit institutions as defined in the New Basel Capital Accord; – the convergence or divergence between financial reporting and prudential standards. Although focusing on seemingly different issues, the rich and fruitful discussions that were held throughout the workshops revealed a broad community of views on financial stability issues underlying the two topics examined. Moreover, a dinner-discussion was organised by Pr Avinash Persaud, holder of the Chair in Commerce at Gresham College, on the risks of financial instability arising from the standardisation of asset allocation approaches, herd behaviours and the blind use of portfolio risk management techniques. Discussions ended with a round table debate, introduced by Governor Trichet and chaired by Mr Marc-Olivier Strauss-Kahn, Director General – Directorate General Economics and International Relations. Five speakers discussed the topic of “transparency and market discipline”: – Mr Flemming Larsen, Director of the IMF’s European Offices; – Mr William Witherell, Director of Financial, Fiscal and Enterprise Affairs, OECD; – Mr Michel Prada, former chairman of the COB and of the International Organisation of Securities Commissions (IOSCO) 3; – Mr Jan Brockmeijer, Deputy Executive Director for Supervision, Nederlandsche Bank; – and Mr Svein Andresen, Secretary General of the FSF, who summed up the discussions. Mr Flemming Larsen discussed the issue of transparency in emerging economies in the light of the international financial crises that marked the past decade. In this respect, he stressed the benefits attached to the adoption and the effective implementation by these economies of the international codes and standards promoted by the IMF and the World Bank. These codes and standards cover twelve key areas that would benefit from the application of the principles and standards developed by international bodies in the area of economic governance and financial regulation, and transparency and corporate governance. The IMF reports on the implementation of these codes and standards provide a good means to enhance transparency, market discipline and multilateral surveillance, while helping national authorities to identify priority actions for improving the resilience of their economy. Mr William Witherell discussed the role of corporate governance rules and financial transparency as a means to guaranteeing the integrity and smooth functioning of financial markets. The challenge that now lies ahead for regulators and government authorities is to develop a legal and regulatory framework that fully integrates these requirements in order to rebuild investor confidence and to ensure the effective use of market discipline. As regards the scope of these requirements, he recalled the set of general principles defined in this context by the OECD. These principles are now embodied in the international standards, whose application is recommended by the FSF for industrialised and emerging economies alike. He also stressed the great importance of the rules of governance and internal control in financial institutions given their role in allocating resources, their responsibilities to investors, and their particular exposure to the risks of conflicts of interest owing to the nature of their activities. Mr Michel Prada 4 first recalled the main areas in which regulators were currently working to restore market foundations and improve the functioning of the market: introducing international financial reporting standards, implementing corporate governance principles, organising and supervising auditors, and lastly defining professional standards for the players in charge of interpreting financial information and transmitting it to investors, analysts and rating agencies. He then discussed the challenges arising from the globalisation and increasingly broad scope of markets, underscoring the implications of the risk transfer techniques currently used by intermediaries and the factors underlying the recent excess volatility of asset prices. These developments call for, above and beyond the close co-ordination between the prudential regulation of intermediaries and market regulation, the stepping up of international cooperation between regulators and a better understanding of market mechanisms in order to counter factors of financial instability. Lastly, Mr Jan Brockmeijer discussed Pillar III (market discipline) in the framework of the new capital adequacy regime for banks defined by the Basel Committee. Going hand in hand with the other two Pillars of the New Basel Capital Accord, Pillar III provides for a number of disclosure requirements that enable market participants and prudential authorities to obtain all the necessary parameters to assess risk profiles and the creditworthiness of credit institutions.

Linear oscillations of axisymmetric viscous liquid bridges

Small amplitude free oscillations of axisymmetric capillary bridges are considered for varying values of the capillary Reynolds number C-1 and the slenderness of the bridge Λ . A semi-analytical method is presented that provides cheap and accurate results for arbitrary values of C-1 and Λ ; several asymptotic limits (namely, C>> 1, C>>1, Λ >> 1 \ {and} \ |π -Λ |>> 1 ) are considered in some detail, and the associated approximate results are checked. A fairly complete picture of the (fairly complex) spectrum of the linear problem is obtained for varying values of C and Λ . Two kinds of normal modes, called capillary and hydrodynamic respectively, are almost always clearly identified, the former being associated with free surface deformation and the latter, only with the internal flow field; when C is small the damping rate associated with both kind of modes is comparable, and the hydrodynamic ones explain the appearance of secondary (steady or slowly-varying) streaming flow

A note on the effect of surface contamination in water wave damping

Asymptotic formulas are derived for the effect of contamination on surface wave damping in a brimful circular cylinder; viscosity is assumed to be small and contamination is modelled through Marangoni elasticity with insoluble surfactant. It is seen that an appropriately chosen finite Marangoni elasticity provides an explanation for a significant amount of the unexplained additional damping rate in a well-known experiment by Henderson & Miles (1994); discrepancies are within 15%, significantly lower than those encountered by Henderson & Miles (1994) under the assumption of inextensible film

Conflict and Uncertainty: A Dynamic Approach

Most of the conflict theory papers have used a one-shot game set-up. This does not correspond to reality and is certainly incapable of modeling real conflict situations. We propose a dynamic model with N-agents in an infinite time frame which allow us to adequately analyze conflicts. The dynamic aspects of the conflict come at least from two sources: first, the preferences on the good in dispute are not static; second, agentsin conflict can influence the future of the conflict by making investment in conflict's technology. We use a simple deterministic rule that defines the evolution of the subjective valuation for the good in dispute according to the results obtained by the agents in the recent past. During each period the realization of stochastic variables of the nature's states induces uncertainty in the game. The model is a theoretical approach that can be applied to evaluate the role of uncertainty and valuations' evolution on the optimal choices of forward-looking economic agents that seek to appropriate a share of a divisible resource.Conflict Theory, Dynamic Economic Model, Uncertainty

Dark matter distribution in the Draco dwarf from velocity moments

We study the distribution of dark matter in the Draco dwarf spheroidal galaxy by modelling the moments of the line-of-sight velocity distribution of stars obtained from new velocity data of Wilkinson et al. The luminosity distribution is approximated by a Sersic profile fitted to the data by Odenkirchen et al. We assume that the dark matter density profile is given by a formula with an inner cusp and an outer exponential cut-off, as recently proposed by Kazantzidis et al. as a result of simulations of tidal stripping of dwarfs by the potential of the Milky Way. The dark matter distribution is characterized by the total dark mass and the cut-off radius. The models have arbitrary velocity anisotropy parameter assumed to be constant with radius. We estimate the three parameters by fitting both the line-of-sight velocity dispersion and kurtosis profiles, which allows us to break the degeneracy between the mass distribution and velocity anisotropy. The results of the fitting procedure turn out to be very different depending on the stellar sample considered, that is on our choice of stars with discrepant velocities to be discarded as interlopers. For our most reliable sample, the model parameters remain weakly constrained, but the robust result is the preference for weakly tangential stellar orbits and high mass-to-light ratios. The best-fitting total mass is then 7 10^7 M_sun, much lower than recent estimates, while the mass-to-light ratio is M/L_V = 300 and almost constant with radius. If the binary fraction in the stellar population of Draco turns out to be significant, the kurtosis of the global velocity distribution will be smaller and the orbits inferred will be more tangential, while the resulting mass estimate lower.Comment: 11 pages, 8 figures, accepted for publication in MNRA

The spherical collapse model with shell crossing

In this work, we study the formation and evolution of dark matter halos by means of the spherical infall model with shell-crossing. We present a framework to tackle this effect properly based on the numerical follow-up, with time, of that individual shell of matter that contains always the same fraction of mass with respect to the total mass. In this first step, we do not include angular momentum, velocity dispersion or triaxiality. Within this framework - named as the Spherical Shell Tracker (SST) - we investigate the dependence of the evolution of the halo with virial mass, with the adopted mass fraction of the shell, and for different cosmologies. We find that our results are very sensitive to a variation of the halo virial mass or the mass fraction of the shell that we consider. However, we obtain a negligible dependence on cosmology. Furthermore, we show that the effect of shell-crossing plays a crucial role in the way that the halo reaches the stabilization in radius and the virial equilibrium. We find that the values currently adopted in the literature for the actual density contrast at the moment of virialization, delta_vir, may not be accurate enough. In this context, we stress the problems related to the definition of a virial mass and a virial radius for the halo. The question of whether the results found here may be obtained by tracking the shells with an analytic approximation remains to be explored.Comment: 15 pages, 4 figures, 9 tables, replaced to match the published MNRAS versio