An assessment of alternative lender of last resort schemes

We sketch a theoretical framework for comparing the properties of funded LOLR schemes. We construct an idealized lender of last resort and investigate how it formulates policy under alternative public and private governance structures. The alternatives are a (first-best) social utility maximizer that can dictate participation, and three voluntary schemes: a public lender of last resort, a mutual clearing house that formulates policy by voting, and a profit maximizing private LOLR scheme. We compare the policies formulated by these institutions from the viewpoint of social desirability. Our model targets the debate on free banking, in particular the issue of whether private institutions would fare well as lenders of last resort. In our model, the first-best LOLR scheme always covers the whole banking sector and offers full insurance to the participants. We find that voluntary schemes succeed relatively well as lenders of last resort in situations where recipients of LOLR assistance can repay LOLR loans with interest. In this case, the LOLR can use interest rate policy to make the scheme attractive to banks of every quality and thus create incentives for comprehensive entry. In private schemes, policy tends to be distorted if the private scheme is the only possible scheme. However, competitive forces lead private institutions to approach the first-best outcome, which is the only contestable outcome. The end result changes when we investigate a situation in which banks’ ability to repay LOLR loans is limited. When lending is associated with losses for the LOLR, good quality banks will tend to stay out of the LOLR scheme and participation in voluntary schemes will always fall short of the first-best outcome. A compulsory scheme (such as a central bank that can impose a reserve requirement on banks) has an advantage over voluntary schemes.liquidity; lender of last resort; banking; central banking; governance

Credit crunch? An empirical test of cyclical credit policy

In this paper we test the hypothesis that credit policies are pro-cyclical. Our approach is based on a stochastic frontier analysis of borrower data, as in Chen and Wang (2008). We extend the applicability of the approach, and propose a novel test specification which is informative of many types of pro-cyclicality. The analysis of representative samples of household borrowers during a huge cycle and its aftermath yields evidence of time-varying credit policy. We find that the focus of credit policy changed from collateral to current income during the cycle. Instead of a credit crunch, ie, an overall tightening of credit during the economic and financial contraction, we find a tightening of credit limits with respect to a minority of borrowers and an easing for the majority. In the course of the post-crisis period, credit policy became more lenient. Both the level of credit limits and the ‘tailoring’ of limits to group-specific characteristics of households increased. A reduction in the idiosyncratic variance of limits suggest that banks have become more consistent in their credit policies.credit policy; credit constraints; household borrowing; frontier analysis

Markets, Reserves and Lenders of Last Resort as Sources of Bank Liquidity

We study the long standing issue of whether markets can supply banks with sufficient liquidity or whether markets should be complemented with a lender of last resort (LOLR). For this purpose, we develop an extended version of the recent model of Holmström and Tirole (1998) on the supply of liquidity to firms. H&Ts original model analyses liquidity supply to firms that are facing solvency shocks. We apply their framework to banking and extend the framework to admit the analysis of problems associated with transitory liquidity outflows, even absent any change in a bank's value. Our premise is that the scope for moral hazard may increase in connection with liquidity outflows. Moral hazard, which we interpret as the possibility of laxity in banks' monitoring of firms, may increase with liquidity outflows because banks need to increase their monitoring efforts in order to safeguard their own interests. The model illustrates many key aspects the classical LOLR debate. The model shows how moral hazard limits of banks’ ability to borrow from markets to cover liquidity outflows. It also predicts banks’ demand for liquid reserves and the economies associated with centralization of reserves in a liquidity pool when the holding of liquid reserves entails opportunity costs. Finally, the model enables discussion of viable lending policies for the LOLR and contrasts these with the ‘Bagehotian principles’, which are still widely used as benchmark criteria in evaluating LOLR operations.liquidity; lender of last resort; banking; central banking

Household loan loss risk in Finland – estimations and simulations with micro data

This discussion paper presents a microsimulation model of household distress. We use logit analysis to estimate the extent to which a household’s risk of being financially distressed depends on net income after tax and loan servicing costs. The impact of assumed macroeconomic shocks on this net income concept is calculated at the household level. The microsimulation model is used to simulate both the number of distressed households and their aggregate debt in various macroeconomic scenarios. The simulations indicate that household credit risks to banks are relatively well contained.financial stability; indebtedness; micro simulations; households

Exploring the antecedents of dynamic capabilities in a software product company : Dynamic capabilities enabling adaptation to change

Firms operating in the software industry are constantly faced with new opportunities and threats that stem from the volatility of the market. Customer needs change and competing solutions come up in high frequency as software development practices have gotten better during the last decade. Companies need to obtain dynamic capabilities to address rapidly changing markets. This study examines how dynamic capabilities and their underlying microfoundations enable adaption to change in the environment. The study was conducted as a qualitative case study of Company X. Data was gathered using semi-structured interviews with employees in the area of product management. Furthermore, data from interviews were complemented with various documentation to understand the phenomenon better. The findings of this study show that sensing, seizing, and transforming dynamic capabilities deploy their underpinning microfoundations in ways that enable the company to sense opportunities and threats, address those findings, and transform its (intangible) resource base as required for handling change in the environment. The phenomenon results in three distinct outcomes that are represented as principles of agility: agility foundations, agility fostering culture and learning fast. This thesis contributes to the literature on dynamic capabilities, product management and agility. The dynamic capabilities literature has previously overlooked the software industry, and this study fills this gapOhjelmistoalalla toimivat yritykset kohtaavat jatkuvasti uusia mahdollisuuksia ja uhkia, jotka syntyvät markkinoiden epävakaudesta. Asiakastarpeet muuttuvat ja kilpailevia ratkaisuja syntyy paljon, sillä ohjelmistokehityskäytännöt ovat parantuneet viime vuosikymmenen ajan. Yrityksillä on oltava dynaamisia kyvykkyyksiä, jotta ne voivat vastata nopeasti muuttuviin markkinoihin. Tässä tutkimuksessa tarkastellaan, miten dynaamiset kyvykkyydet ja niiden taustalla olevat mikroperustat mahdollistavat sopeutumisen ympäristön muutoksiin. Tutkimus toteutettiin laadullisena tapaustutkimuksena (Company X). Tiedot kerättiin puolistrukturoiduilla haastatteluilla, joita tehtiin tuotehallinnan työntekijöiden kanssa. Lisäksi haastatteluista saatuja tietoja täydennettiin erilaisilla asiakirjoilla, jotta tutkittava ilmiö ymmärrettäisiin paremmin. Tutkimuksen tulokset osoittavat, että kolme dynaamista kyvykkyyttä havaitseminen (sensing), hallitseminen (seizing) ja muuntaminen (transforming), käyttävät perustana olevia mikroperustojaan tavoilla, joiden avulla yritys pystyy havaitsemaan mahdollisuuksia ja uhkia, puuttumaan näihin havaintoihin ja muuntamaan (aineetonta) resurssiperustaansa ympäristön muutosten hallinnan edellyttämällä tavalla. Ilmiö johtaa kolmeen eri lopputulokseen, jotka esitetään ketteryyden periaatteina: ketteryyden perusteet, ketteryyttä edistävä kulttuuri ja nopea oppiminen. Tämä tutkielma täydentää dynaamisia kyvykkyyksiä, tuotehallintaa ja ketteryyttä käsittelevää kirjallisuutta. Dynaamisten kyvykkyyksien kirjallisuudessa on aiemmin jätetty huomiotta ohjelmistoala, ja tämä tutkimus täyttää tämän aukon

Sodanjälkeistä naapurien ystävyyttä : Neuvostoliiton ja Suomen musiikkivaihtoa vuodesta 1944 Neuvostoliiton hajoamiseen saakka

In this article, I will analyze the role of music in the process of building peaceful relations between the Soviet Union and the Republic of Finland after the Second World War. The role of music as a weapon of “soft power” was an important alternative in Finnish-Soviet relations in order to enhance understanding between them and to avoid further conflict. I will analyze how the leading Soviet soloists were often first “tested” in Finland before their further outreach to the West from 1944 to the collapse of the Soviet Union. Because of its position as a neutral country between the East and the West Finland was seen as a safe experimental location in which to evaluate the performers’ loyalties to the Soviet regime. However, violinist Victoria Mullova’s 1983 defection to the West via Finland showed that the Soviet power was not so overpowering any more, even towards its own citizens. The Soviet Union was already heading for a collapse due to political and economic realities. Its diminishing cultural influence on the West undermined its power, and accelerated its demise. Using primary source materials and newspapers mainly from the Finnish National Archives and Sibelius Museum as well as the former Soviet archives in Moscow, I will examine the ways in which Soviet government cooperated with Finnish non-governmental organizations such as the Finland-Soviet Union Friendship Society, the main coordinating body of Finnish-Soviet relations, Finnish concert firms etc.In this article, I will analyze the role of music in the process of building peaceful relations between the Soviet Union and the Republic of Finland after the Second World War. The role of music as a weapon of “soft power” was an important alternative in Finnish-Soviet relations in order to enhance understanding between them and to avoid further conflict. I will analyze how the leading Soviet soloists were often first “tested” in Finland before their further outreach to the West from 1944 to the collapse of the Soviet Union. Because of its position as a neutral country between the East and the West Finland was seen as a safe experimental location in which to evaluate the performers’ loyalties to the Soviet regime. However, violinist Victoria Mullova’s 1983 defection to the West via Finland showed that the Soviet power was not so overpowering any more, even towards its own citizens. The Soviet Union was already heading for a collapse due to political and economic realities. Its diminishing cultural influence on the West undermined its power, and accelerated its demise. Using primary source materials and newspapers mainly from the Finnish National Archives and Sibelius Museum as well as the former Soviet archives in Moscow, I will examine the ways in which Soviet government cooperated with Finnish non-governmental organizations such as the Finland-Soviet Union Friendship Society, the main coordinating body of Finnish-Soviet relations, Finnish concert firms etc.Peer reviewe

Tehokas ratkaisumenetelmä stokastisiin optimointiongelmiin endogeenisillä ja eksogeenisillä epävarmuuksilla

Despite multi-stage decision problems being common in production planning, there is a class of such problems for which a general solution framework does not exist, namely problems with endogenous uncertainty. Methods from decision analysis and stochastic programming can be used, but both require significantly constraining assumptions. In order to overcome the current challenges, Decision Programming combines approaches from these two fields, making it possible to acquire optimal strategies for different decision problems. Decision Programming is strictly limited to problems in which uncertainty events and decisions are taken from a finite discrete set, reducing its applicability to problems with continuous decision spaces. Discretizing a continuous decision space increases the problem size and can lead to computational intractability. This thesis presents a problem decomposition approach extending the Decision Programming framework. The decomposition approach allows for considering continuous decision and uncertainty spaces in problems with a suitable structure. The proposed framework was applied to three different problems, including a large-scale production planning problem from literature. The main example in this thesis is a novel approach on climate change mitigation cost-benefit analysis, where R&D is carried out simultaneously with the emissions abatement decisions. The R&D projects provide information on the climate damage severity and decrease the price of abatement. Problems with similar structure have not been discussed in the literature, and the extended Decision Programming framework is able to solve the problem to optimality.Vaikka monivaiheiset päätöksenteko-ongelmat ovat yleisiä tuotannon suunnittelussa, erääseen ryhmään näitä ongelmia ei ole yleistä ratkaisumenetelmää. Tämä johtuu niinsanotusta endogeenisestä epävarmuudesta. Näihin ongelmiin voidaan soveltaa stokastisen optimoinnin ja päätösanalyysin menetelmiä, mutta kummatkin vaativat merkittäviä rajoittavia oletuksia. Uusi menetelmä, Decision Programming, yhdistää stokastisen optimoinnin ja päätösanalyysin menetelmiä mahdollistaen optimistrategioden löytämisen erilaisissa päätösongelmissa. Decision Programming rajoittuu ongelmiin joissa satunnaistapahtumat ja päätökset valitaan äärellisistä diskreeteistä joukoista. Tämä rajoittaa sen soveltuvuutta ongelmiin joissa päätösjoukot ovat jatkuvia, sillä tällaisen päätösjoukon diskretointi kasvattaa ongelman kokoa ja saattaa johtaa laskennallisiin haasteisiin. Tässä työssä esitellään Decision Programming -viitekehystä laajentava hajotusmenetelmä jonka avulla voidaan ratkaista ongelmia, jotka sisältävät jatkuvia päätös- ja epävarmuusjoukkoja. Menetelmän soveltaminen vaatii kuitenkin ongelmalta sopivan rakenteen. Työssä esitettyä menetelmää sovellettiin kolmeen esimerkkiongelmaan, joista yksi on suuren mittakaavan tuotannonsuunnitteluongelma kirjallisuudesta. Työn pääesimerkki on uudenlainen lähestymistapa ilmastonmuutoksen hillinnän kustannus-hyötyanalyysiin, jossa tutkimustyötä tehdään samanaikaisesti päästövähennysten kanssa. Tutkimusprojekteilla saadaan lisätietoa ilmastovaikutusten vakavuudesta ja lasketaan päästövähennysten hintaa. Vastaavanlaisia ongelmia ei ole ennen käsitelty kirjallisuudessa ja laajennettu Decision Programming -viitekehys mahdollistaa optimiratkaisun löytämisen tässä esimerkissä

Habitat Selection and Short-Term Movements of Pallid Sturgeon in the Lower Mississippi and Atchafalaya Rivers

The pallid sturgeon Scaphirhynchus albus is an endangered sturgeon distributed throughout the Mississippi River drainage. Habitat selection and movement have been identified as critical conservation information. Seventy-one pallid sturgeon were tagged with acoustic transmitters in the lower Mississippi River (LMR), and 53 sturgeon were tagged in the Atchafalaya River System (ARS). Twenty-two pallid sturgeon in the LMR and 30 in the ARS were monitored using stationary acoustic receivers to assess short-term movement. Pallid sturgeon in the LMR showed positive selection for island tip, outside-bend natural bank, wing dike, sandbar, outside-bend revetted bank, and secondary channel habitats. Pallid sturgeon in the ARS exhibited positive selection for both inside and outside-bend revetted banks, inside-bend natural banks, and water control structures. Fish selected against the main channel in both systems. Short-term movement in the LMR and ARS was minimal and not related to any of the tested environmental factors

Habitat Selection and Short-Term Movements of Pallid Sturgeon in the Lower Mississippi and Atchafalaya Rivers

The pallid sturgeon Scaphirhynchus albus is an endangered sturgeon distributed throughout the Mississippi River drainage. Habitat selection and movement have been identified as critical conservation information. Seventy-one pallid sturgeon were tagged with acoustic transmitters in the lower Mississippi River (LMR), and 53 sturgeon were tagged in the Atchafalaya River System (ARS). Twenty-two pallid sturgeon in the LMR and 30 in the ARS were monitored using stationary acoustic receivers to assess short-term movement. Pallid sturgeon in the LMR showed positive selection for island tip, outside-bend natural bank, wing dike, sandbar, outside-bend revetted bank, and secondary channel habitats. Pallid sturgeon in the ARS exhibited positive selection for both inside and outside-bend revetted banks, inside-bend natural banks, and water control structures. Fish selected against the main channel in both systems. Short-term movement in the LMR and ARS was minimal and not related to any of the tested environmental factors