Reputational contagion and optimal regulatory forbearance

This paper examines common regulation as cause of interbank contagion. Studies based on the correlation of bank assets and the extent of interbank lending may underestimate the likelihood of contagion because they do not incorporate the fact that banks have a common regulator. In our model, the failure of one bank can undermine the public’s confidence in the competence of the banking regulator, and hence in other banks chartered by the same regulator. Thus depositors may withdraw funds from their, unconnected, banks. The optimal regulatory response to this ‘panic’ behaviour can be to privately exhibit forbearance to the initially failing bank in the hope that it - and hence other vulnerable banks - survives. By contrast, public bailouts are ineffective in preventing panics and must be bolstered by other measures such as increased deposit insurance coverage. Regulatory transparency improves confidence ex ante but impedes regulators’ ability to stem panics ex post. JEL Classification: G21, G28Bank Regulation, Contagion, Reputation

Interbank comptetition with costly screening

We analyse credit market equilibrium when banks screen loan applicants. When banks have a convex cost function of screening, a pure strategy equilibrium exists where banks optimally set interest rates at the same level as their competitors. This result complements Broecker’s (1990) analysis, where he demonstrates that no pure strategy equilibrium exists when banks have zero screening costs. In our set up we show that interest rate on loans are largely independent of marginal costs, a feature consistent with the extant empirical evidence. In equilibrium, banks make positive profits in our model in spite of the threat of entry by inactive banks. Moreover, an increase in the number of active banks increases credit risk and so does not improve credit market effciency: this point has important regulatory implications. Finally, we extend our analysis to the case where banks have differing screening abilities.Interbank Competition, Screening, Credit Risk, Adverse Selection

Regulating Financial Conglomerates

We analyse a model of financial intermediation in which intermediaries are subject to moral hazard and they do not invest socially optimally, because they ignore the systemic costs of failure and, in the case of banks, because they fail to account for risks which are assumed by the deposit insurance fund. Capital adequacy requirements are designed to minimise the social costs of these effects. We show that banks should always have higher regulatory capital requirements than insurance companies. Contrary to received wisdom, when banks and insurance companies combine to form financial conglomerates we show that it is socially optimal to separate their balance sheets. Moreover, the practice of "regulatory arbitrage", or of transfering assets from one balance sheet to another, is welfare increasing.

Increased expression of a microRNA correlates with anthelmintic resistance in parasitic nematodes

Resistance to anthelmintic drugs is a major problem in the global fight against parasitic nematodes infecting humans and animals. While previous studies have identified mutations in drug target genes in resistant parasites, changes in the expression levels of both targets and transporters have also been reported. The mechanisms underlying these changes in gene expression are unresolved. Here, we take a novel approach to this problem by investigating the role of small regulatory RNAs in drug resistant strains of the important parasite Haemonchus contortus. microRNAs (miRNAs) are small (22 nt) non-coding RNAs that regulate gene expression by binding predominantly to the 3′ UTR of mRNAs. Changes in miRNA expression have been implicated in drug resistance in a variety of tumor cells. In this study, we focused on two geographically distinct ivermectin resistant strains of H. contortus and two lines generated by multiple rounds of backcrossing between susceptible and resistant parents, with ivermectin selection. All four resistant strains showed significantly increased expression of a single miRNA, hco-miR-9551, compared to the susceptible strain. This same miRNA is also upregulated in a multi-drug-resistant strain of the related nematode Teladorsagia circumcincta. hco-miR-9551 is enriched in female worms, is likely to be located on the X chromosome and is restricted to clade V parasitic nematodes. Genes containing predicted binding sites for hco-miR-9551 were identified computationally and refined based on differential expression in a transcriptomic dataset prepared from the same drug resistant and susceptible strains. This analysis identified three putative target mRNAs, one of which, a CHAC domain containing protein, is located in a region of the H. contortus genome introgressed from the resistant parent. hco-miR-9551 was shown to interact with the 3′ UTR of this gene by dual luciferase assay. This study is the first to suggest a role for miRNAs and the genes they regulate in drug resistant parasitic nematodes. miR-9551 also has potential as a biomarker of resistance in different nematode species

Sustainability appraisal: Jack of all trades, master of none?

Sustainable development is a commonly quoted goal for decision making and supports a large number of other discourses. Sustainability appraisal has a stated goal of supporting decision making for sustainable development. We suggest that the inherent flexibility of sustainability appraisal facilitates outcomes that often do not adhere to the three goals enshrined in most definitions of sustainable development: economic growth, environmental protection and enhancement, and the wellbeing of the human population. Current practice is for sustainable development to be disenfranchised through the interpretation of sustainability, whereby the best alternative is good enough even when unsustainable. Practitioners must carefully and transparently review the frameworks applied during sustainability appraisal to ensure that outcomes will meet the three goals, rather than focusing on a discourse that emphasises one or more goals at the expense of the other(s)

Regulating financial conglomerates

We investigate the optimal regulation of financial conglomerates which combine a bank and a non-bank financial institution. The conglomerate’s risk-taking incentives depend upon the level of market discipline it faces, which in turn is determined by the conglomerate’s liability structure. We examine optimal capital requirements for stand-alone institutions, for integrated financial conglomerates, and for financial conglomerates that are structured as holding companies. For a given risk profile, integrated conglomerates have a lower probability of failure than either their stand-alone or decentralized equivalent. However, when risk profiles are endogenously selected, conglomeration may extend the reach of the deposit insurance safety net and hence provide incentives for increased risk-taking. As a result, integrated conglomerates may optimally attract higher capital requirements. In contrast, decentralised conglomerates are able to hold assets in the socially most efficient place. Their optimal capital requirements encourage this. Hence, the practice of “regulatory arbitrage”, or of transferring assets from one balance sheet to another, is welfare-increasing. We discuss the policy implications of our finding in the context not only of the present debate on the regulation of financial conglomerates but also in the light of existing US bank holding company regulation

Combined extracellular matrix cross-linking activity of the peroxidase MLT-7 and the dual oxidase BLI-3 is critical for post-embryonic viability in <i>Caenorhabditis elegans</i>

The nematode cuticle is a protective collagenous extracellular matrix that is modified, cross-linked, and processed by a number of key enzymes. This Ecdysozoan-specific structure is synthesized repeatedly and allows growth and development in a linked degradative and biosynthetic process known as molting. A targeted RNA interference screen using a cuticle collagen marker has been employed to identify components of the cuticle biosynthetic pathway. We have characterized an essential peroxidase, MoLT-7 (MLT-7), that is responsible for proper cuticle molting and re-synthesis. MLT-7 is an active, inhibitable peroxidase that is expressed in the cuticle-synthesizing hypodermis coincident with each larval molt. mlt-7 mutants show a range of body morphology defects, most notably molt, dumpy, and early larval stage arrest phenotypes that can all be complemented with a wild type copy of mlt-7. The cuticles of these mutants lacks di-tyrosine cross-links, becomes permeable to dye and accessible to tyrosine iodination, and have aberrant collagen protein expression patterns. Overexpression of MLT-7 causes mutant phenotypes further supporting its proposed enzymatic role. In combination with BLI-3, an H2O2-generating NADPH dual oxidase, MLT-7 is essential for post-embryonic development. Disruption of mlt-7, and particularly bli-3, via RNA interference also causes dramatic changes to the in vivo cross-linking patterns of the cuticle collagens DPY-13 and COL-12. This points toward a functionally cooperative relationship for these two hypodermally expressed proteins that is essential for collagen cross-linking and proper extracellular matrix formation

Wet scavenging of soluble gases in DC3 deep convective storms using WRF-Chem simulations and aircraft observations

We examine wet scavenging of soluble trace gases in storms observed during the Deep Convective Clouds and Chemistry (DC3) field campaign. We conduct high-resolution simulations with the Weather Research and Forecasting model with Chemistry (WRF-Chem) of a severe storm in Oklahoma. The model represents well the storm location, size, and structure as compared with Next Generation Weather Radar reflectivity, and simulated CO transport is consistent with aircraft observations. Scavenging efficiencies (SEs) between inflow and outflow of soluble species are calculated from aircraft measurements and model simulations. Using a simple wet scavenging scheme, we simulate the SE of each soluble species within the error bars of the observations. The simulated SEs of all species except nitric acid (HNO_3) are highly sensitive to the values specified for the fractions retained in ice when cloud water freezes. To reproduce the observations, we must assume zero ice retention for formaldehyde (CH_2O) and hydrogen peroxide (H_2O_2) and complete retention for methyl hydrogen peroxide (CH_3OOH) and sulfur dioxide (SO_2), likely to compensate for the lack of aqueous chemistry in the model. We then compare scavenging efficiencies among storms that formed in Alabama and northeast Colorado and the Oklahoma storm. Significant differences in SEs are seen among storms and species. More scavenging of HNO_3 and less removal of CH_3OOH are seen in storms with higher maximum flash rates, an indication of more graupel mass. Graupel is associated with mixed-phase scavenging and lightning production of nitrogen oxides (NO_x), processes that may explain the observed differences in HNO_3 and CH_3OOH scavenging