Tests of Ex Ante Versus Ex Post Theories of Collateral Using Private and Public Information

Collateral is a widely used, but not well understood, debt contracting feature. Two broad strands of theoretical literature explain collateral as arising from the existence of either ex ante private information or ex post incentive problems between borrowers and lenders. However, the extant empirical literature has been unable to isolate each of these effects. This paper attempts to do so using a credit registry that is unique in that it allows the researcher to have access to some private information about borrower risk that is unobserved by the lender. The data also includes public information about borrower risk, loan contract terms, and ex post performance for both secured and unsecured loans. The results suggest that the ex post theories of collateral are empirically dominant, although the ex ante theories are also valid for customers with short borrower-lender relationships that are relatively unknown to the lender.Collateral;Asymmetric Information;Banks

The effect of the common bond and membership expansion on credit union risk

This paper examines differences in institutional risk profiles based on credit union membership type and membership expansion via “select employee groups,” or SEGs, which are now expressly allowed by the Credit Union Membership Access Act of 1998. A cross-sectional statistical model is specified that examines risk variation relative to the type of common bond and the breadth of the credit union’s membership. In findings that are consistent with earlier research, the authors document that occupationally based credit unions have a unique risk profile relative to other common bonds. This profile includes a greater exposure to concentration risk, which is hedged by holding greater proportions of capital. ; The authors also examine the subsample of Single-Bond occupational credit unions and those Multi-Bond credit unions with primarily occupational group members. They find that the presence of SEGs is negatively related to capital ratios and positively related to loan-to-share ratios relative to the Single-Bond occupational credit unions. The use of survey data documenting the number of SEGs confirms that, as more SEGs are added, credit unions tend to increase their loan-to-share ratios and decrease their capital ratios. However, the number of SEGs and the proportion of loan delinquencies are found to be positively related, suggesting that the informational advantages associated with the common bond become diluted as new groups are added. Overall, the authors conclude that there are material benefits of credit union membership diversification and that these benefits derive from expanded investment opportunities and reduced concentration risk.Credit unions ; Risk

Reexamining the Empirical Relation between Loan Risk and Collateral:The Role of the Economic Characteristics of Collateral

Abstract: This paper offers a possible explanation for the conflicting results in the literature concerning the empirical relation between collateral and loan risk. We posit that certain economic characteristics of collateral may be associated with the empirical dominance of different risk-collateral channels implied by economic theory, namely the “lender selection,” “borrower selection,” “risk-shifting,” and “loss mitigation” channels. Each of these four channels has different predictions regarding the empirical relations between collateral and loan risk. For our sample of commercial loans, we find that the “lender selection” channel appears to be especially important for outside collateral, the “risk-shifting” and “loss mitigation” channels are important for liquid collateral, and the “borrower selection” channel appears to hold weakly for nondivertible collateral. Our results suggest that the conflicting results in the extant riskcollateral literature may occur because different samples may be dominated by collateral with different economic characteristics.

Occult Cushing\u27s Syndrome Presenting with Osteoporosis

Osteoporosis is a frequent complication both of endogenous hypercortisolism and of long-term treatment with corticosteroids, but only rarely is it the major clinical feature with the more characteristic features absent or minimally present. In the two patients presented, hypercortisolism was uncovered only during routine evaluation of osteoporosis. This presentation is probably due to slow progression of the disease and is often associated with so-called black adenoma of the adrenal gland. Secondary causes should be sought in all patients with seemingly senile or postmenopausal osteoporosis

Reexamining the empirical relation between loan risk and collateral: The roles of collateral liquidity and types

This paper offers a possible explanation for the conflicting results in the literature concerning the empirical relation between collateral and loan risk. We posit that differences in collateral characteristics, such as liquidity, may be associated with the empirical dominance of different risk-collateral relations implied by economic theory. Using credit registry data and a novel identification strategy to control for borrower and lender selection effects allows us to differentiate between the ex ante and ex post theories of collateral. We find that collateral overall is associated with lower risk premiums and higher default rates. The results indicate an important role for collateral in mitigating losses and reducing risk-taking incentives, consistent with ex post theories. Liquid collateral is associated with especially low risk premiums, and these loans perform better than those with illiquid collateral or no collateral. We also find that individual collateral types exhibit significant variation in terms of risk-collateral relations, with some consistent with ex ante theories and others with ex post theories. Our results suggest that the conflicting results in the literature may occur because different samples may be dominated by different types of collateral with different economic characteristics

Evaluating Process-Based Integrated Assessment Models of Climate Change Mitigation

Process-based integrated assessment models (IAMs) analyse transformation pathways to mitigate climate change. Confidence in models is established by testing their structural assumptions and comparing their behaviour against observations as well as other models. Climate model evaluation is concerted, and prominently reported in a dedicated chapter in the IPCC WG1 assessments. By comparison, evaluation of process-based IAMs tends to be less visible and more dispersed among modelling teams, with the exception of model inter-comparison projects. We contribute the first comprehensive analysis of process-based IAM evaluation, drawing on a wide range of examples across eight different evaluation methods testing both structural and behavioural validity. For each evaluation method, we compare its application to process-based IAMs with its application to climate models, noting similarities and differences, and seeking useful insights for strengthening the evaluation of process-based IAMs. We find that each evaluation method has distinctive strengths and limitations, as well as constraints on their application. We develop a systematic evaluation framework combining multiple methods that should be embedded within the development and use of process-based IAMs

The Dynamics of Sustained Reentry in a Loop Model with Discrete Gap Junction Resistance

Dynamics of reentry are studied in a one dimensional loop of model cardiac cells with discrete intercellular gap junction resistance ($R$). Each cell is represented by a continuous cable with ionic current given by a modified Beeler-Reuter formulation. For $R$ below a limiting value, propagation is found to change from period-1 to quasi-periodic ($QP$) at a critical loop length ($L_{crit}$) that decreases with $R$. Quasi-periodic reentry exists from $L_{crit}$ to a minimum length ($L_{min}$) that is also shortening with $R$. The decrease of $L_{crit}(R)$ is not a simple scaling, but the bifurcation can still be predicted from the slope of the restitution curve giving the duration of the action potential as a function of the diastolic interval. However, the shape of the restitution curve changes with $R$.Comment: 6 pages, 7 figure