Default risk sharing between banks and markets : the contribution of collateralized debt obligations

This paper contributes to the economics of financial institutions risk management by exploring how loan securitization a.ects their default risk, their systematic risk, and their stock prices. In a typical CDO transaction a bank retains through a first loss piece a very high proportion of the expected default losses, and transfers only the extreme losses to other market participants. The size of the first loss piece is largely driven by the average default probability of the securitized assets. If the bank sells loans in a true sale transaction, it may use the proceeds to to expand its loan business, thereby incurring more systematic risk. We find an increase of the banks' betas, but no significant stock price e.ect around the announcement of a CDO issue. Our results suggest a role for supervisory requirements in stabilizing the financial system, related to transparency of tranche allocation, and to regulatory treatment of senior tranches. JEL Klassifikation: D82, G21, D74

The future of securitization

Securitization is a financial innovation that experiences a boom-bust cycle, as many other innovations before. This paper analyzes possible reasons for the breakdown of primary and secondary securitization markets, and argues that misaligned incentives along the value chain are the primary cause of the problems. The illiquidity of asset and interbank markets, in this view, is a market failure derived from ill-designed mechanisms of coordinating financial intermediaries and investors. Thus, illiquidity is closely related to the design of the financial chains. Our policy conclusions emphasize crisis prevention rather than crisis management, and the objective is to restore a “comprehensive incentive alignment”. The toe-hold for strengthening regulation is surprisingly small. First, we emphasize the importance of equity piece retention for the long-term quality of the underlying asset pool. As a consequence, equity piece allocation needs to be publicly known, alleviating market pricing. Second, on a micro level, accountability of managers can be improved by compensation packages aiming at long term incentives, and penalizing policies with destabilizing effects on financial markets. Third, on a macro level, increased transparency relating to effective risk transfer, risk-related management compensation, and credible measurement of rating performance stabilizes the valuation of financial assets and, hence, improves the solvency of financial intermediaries. Fourth, financial intermediaries, whose risk is opaque, may be subjected to higher capital requirements

Default Risk Sharing Between Banks and Markets: The Contribution of Collateralized Debt Obligations

This paper contributes to the economics of financial institutions risk management by exploring how loan securitization a.ects their default risk, their systematic risk, and their stock prices. In a typical CDO transaction a bank retains through a first loss piece a very high proportion of the expected default losses, and transfers only the extreme losses to other market participants. The size of the first loss piece is largely driven by the average default probability of the securitized assets. If the bank sells loans in a true sale transaction, it may use the proceeds to to expand its loan business, thereby incurring more systematic risk. We find an increase of the banks’ betas, but no significant stock price e.ect around the announcement of a CDO issue. Our results suggest a role for supervisory requirements in stabilizing the financial system, related to transparency of tranche allocation, and to regulatory treatment of senior tranches.

Default risk sharing between banks and markets: the contribution of collateralized debt obligations

This paper contributes to the economics of financial institutions risk management by exploring how loan securitization affects their default risk, their systematic risk, and their stock prices. In a typical CDO transaction a bank retains through a first loss piece a very high proportion of the default losses, and transfers only the extreme losses to other market participants. The size of the first loss piece is largely driven by the average default probability of the securitized assets. If the bank sells loans in a true sale transaction, it may use the proceeds to expand its loan business, thereby affecting systematic risk. For a sample of European CDO issues, we find an increase of the banks’ betas, but no significant stock price effect around the announcement of a CDO issue.

Osteopathic manipulative treatment for nonspecific low back pain: A systematic review and meta-analysis

BACKGROUND: Nonspecific back pain is common, disabling, and costly. Therefore, we assessed effectiveness of osteopathic manipulative treatment (OMT) in the management of nonspecific low back pain (LBP) regarding pain and functional status. METHODS: A systematic literature search unrestricted by language was performed in October 2013 in electronic and ongoing trials databases. Searches of reference lists and personal communications identified additional studies. Only randomized clinical trials were included; specific back pain or single treatment techniques studies were excluded. Outcomes were pain and functional status. Studies were independently reviewed using a standardized form. The mean difference (MD) or standard mean difference (SMD) with 95% confidence intervals (CIs) and overall effect size were calculated at 3 months posttreatment. GRADE was used to assess quality of evidence. RESULTS: We identified 307 studies. Thirty-one were evaluated and 16 excluded. Of the 15 studies reviewed, 10 investigated effectiveness of OMT for nonspecific LBP, 3 effect of OMT for LBP in pregnant women, and 2 effect of OMT for LBP in postpartum women. Twelve had a low risk of bias. Moderate-quality evidence suggested OMT had a significant effect on pain relief (MD, -12.91; 95% CI, -20.00 to -5.82) and functional status (SMD, -0.36; 95% CI, -0.58 to -0.14) in acute and chronic nonspecific LBP. In chronic nonspecific LBP, moderate-quality evidence suggested a significant difference in favour of OMT regarding pain (MD, -14.93; 95% CI, -25.18 to -4.68) and functional status (SMD, -0.32; 95% CI, -0.58 to -0.07). For nonspecific LBP in pregnancy, low-quality evidence suggested a significant difference in favour of OMT for pain (MD, -23.01; 95% CI, -44.13 to -1.88) and functional status (SMD, -0.80; 95% CI, -1.36 to -0.23), whereas moderate-quality evidence suggested a significant difference in favour of OMT for pain (MD, -41.85; 95% CI, -49.43 to -34.27) and functional status (SMD, -1.78; 95% CI, -2.21 to -1.35) in nonspecific LBP postpartum. CONCLUSION: Clinically relevant effects of OMT were found for reducing pain and improving functional status in patients with acute and chronic nonspecific LBP and for LBP in pregnant and postpartum women at 3 months posttreatment. However, larger, high-quality randomized controlled trials with robust comparison groups are recommended. ELECTRONIC SUPPLEMENTARY MATERIAL: The online version of this article (doi:10.1186/1471-2474-15-286) contains supplementary material, which is available to authorized users

Instabile Finanzmärkte

Die Vorstellung selbst-stabilisierender, zum Gleichgewicht tendierender Finanzmärkte, lange Zeit als Selbstverständlichkeit angesehen, ist durch die aktuelle Banken- und Kreditkrise in Frage gestellt. Trotz ausgefeilten Risikomanagements der Banken und einer an Basel II orientierten Aufsicht ist es in den Jahren 2007-2009 zu einem Zusammenbruch des Interbankenmarktes und weiter Teile der Anleihemärkte gekommen. Die hierdurch erzwungenen massiven Staatsinterventionen zur Bankenrettung sind ohne Beispiel in der modernen Wirtschaftsgeschichte. In diesem Essay suchen wir nach Ansatzpunkten einer Erklärung für die Instabilität der Finanzmärkte. Als zentrale Krisenursache sehen wir Schwächen der Informationsarchitektur, deren Aufgabe darin besteht, glaubwürdige Information für Investoren bereitzustellen. Drei Determinanten der Instabilität werden herausgestellt, erstens die Nutzung von Schuldtiteln verbunden mit hohen Verschuldungsgraden, zweitens die Handelbarkeit von Titeln verbunden mit erhöhter Risikoübernahme, sowie drittens die zunehmende Komplexität von Finanzprodukten und Finanznetzwerken verbunden mit einer Homogenisierung der Aktiva- und Risikostrukturen von Finanzinstituten. Alle drei Faktoren verstärken die Anfälligkeit des Finanzsystems und zugleich die Bedeutung der Informationsarchitektur. Hieraus lassen sich Anforderungen an eine sinnvolle Reform der Regulierung ableiten. Neben den Anreizproblemen, die Gegenstand einer weiteren Arbeit sind (Franke/Krahnen 2009), diskutieren wir hier vier Kernthemen: glaubwürdige Informationen, makroprudentielle Aufsicht, robuste Eigenkapitalstandards und eine notwendige Risikobegrenzung auf Derivatemärkte

Zur @Bedeutung des Vektors Ixodes ricinus und verschiedener Wirtsspezies für die Verbreitung zeckenassoziierter Krankheitserreger

Spirochetes of the Lyme borreliosis group, Anaplasma phagocytophilum, rickettsiae of the spotted fever group (SFG) and parasites of the genus Babesia cause a great variety of partly life-threatening diseases. Although their importance as emerging tick-borne pathogens is increasing in Europe, many issues about their ecology are still unclear. To gain information about their transmission cycles, feeding and host-seeking Ixodes ricinus ticks were tested for pathogen-specific DNA. Bird-feeding ticks were more frequently infected with a variety of Borrelia spp. than small mammals, suggesting that rodents are less important as reservoirs for these pathogens. Surprisingly, two rodent-borne species were found in bird-feeding larvae whereas they were rare in ticks from small mammals. This suggests that the so far assumed strict associations of particular Borrelia spp. with different vertebrate species have to be rediscussed. For the first time, SFG-rickettsiae were detected in bird- and rodent-feeding ticks in Germany. Because rickettsiae are transmitted transovarially by I. ricinus, no conclusions about a reservoir role of examined host species can be drawn from the data but at least a vehicle function of migrating birds can be assumed. Furthermore, this study provides the first record of human pathogenic Babesia spp. in I. ricinus ticks collected from birds and rodents. The fact that not transovarially transmitted small Babesia spp. were found in larvae feeding on both vertebrate groups, suggests that they are competent reservoirs at least for Ba. microti. The data also indicate a reservoir function of small mammals for A. phagocytophilum. The presence of coinfected ticks in the investigation areas suggests that the risk for humans and animals of acquiring multiple infections is relatively high. Considering severe clinical outcomes as well as problems in diagnosis and treatment of coinfections, the guidelines for handling tick-borne diseases have to be updated