A Shot at Regulating Securitization

In order to incentivize stronger issuer due diligence effort, European and U.S. authorities are amending securitization-related regulations to force issuers to retain an economic interest in the securitization products they issue. The idea is that if loan originators and securitizers have more skin in the game they will more diligently screen the loans they originate and securitize. This paper uses a simple model to explore the economics of equity and mezzanine tranche retention in the context of systemic risk, accounting frictions and reduced form informational asymmetries. It shows that screening levels are highest when the loan originating bank retains the equity tranche. However, most of the time a profit maximizing bank would favor retention of the less risky mezzanine tranche, thereby implying a suboptimal screening effort from a regulator's point of view. This is mainly due to lower capital charges, loan screening costs and lower retention levels. This distortion gets even more pronounced in case the economic outlook is positive or profitability is high, thereby making the case for dynamic and countercyclical credit risk retention requirements. Finally, the paper also illustrates the importance of loan screening costs for the retention decision and thereby shows that an unanimous imposition of equity tranche retention might run the risk of shutting down securitization markets.Securitization-related regulations; the economics of equity

Credit Derivatives

Credit derivatives are a useful tool for lenders who want to reduce their exposure to a particular borrower but are unwilling to sell their claims on that borrower. Without actually transferring ownership of the underlying assets, these contracts transfer risk from one counterparty to another. Commercial banks are the major participants in this growing market, using these transactions to diversify their portfolios of loans and other risky assets. The authors examine the size and workings of this relatively new market and discuss the potential of these transactions for distorting existing incentives for risk management and risk monitoring.

The Federal Government’s Use of Interest Rate Swaps and Currency Swaps

Interest rate swaps and currency swaps are contracts in which counterparties agree to exchange cash flows according to a pre-arranged formula over a period of time. Since 1985, the federal government has been us-ing such swaps to manage its liabilities in a cost-effective and flexible manner. The authors outline the characteristics of swap agreements and the ways in which the government uses them. They show that the swap program has been cost-effective, estimating that past and projected savings exceed $500 million. The authors also discuss the methods that the government uses to monitor the counterparty credit risk associated with these transactions.

New Financial Instruments for Managing Longevity Risk

Reduced returns and longevity risk are making it challenging for employers to offer defined benefit pensions. In countries with large defined benefit pension plan sectors, sponsors are transferring these obligations, and the associated investment and longevity risk, to life (re)insurers via buy-outs, buy-ins, and longevity swaps. Nevertheless, to date, there has been no successful longevity bond issuance, although there have been several false starts. This contrasts with the active market for catastrophe bonds that transfer risk associated with catastrophic events from (re)insurers to capital markets. This paper reviews catastrophe bond and other insurance risk transfer market developments, to identify the factors and design features that have resulted in success and failure. Conclusions are informed by an extensive literature review and quantitative survey, plus discussions with market participants including public policy makers. We conclude with suggestions for product design features and public policies that might kick start vibrant longevity bond markets

Global Carbon-and-Conservation Models, Global Eco-States? Ecuador’s Yasuní-ITT Initiative and Governance Implications

The “global carbon age” marks a structural change far beyond the economic realms of implementing carbon trade, affecting the fabric of global environmental governance and its actors. Carbon trade and conservation in the Global South have taken on various forms, and climate change mitigation efforts in light of continued rainforest deforestation are scrambling to establish effective approaches. Ecuador’s Yasuní-ITT Initiative proposes a new global carbon-and-conservation model in the Ecuadorian Amazon that leaves oil reserves of the Yasuní Ishpingo Tambococha Tiputini (ITT) oil fields underground, in exchange for international compensation payments that would be based on voluntary contributions of governments and nongovernmental actors in an international conservation partnership and trust fund under the auspices of the United Nations Development Programme. This model suggests far-reaching consequences, as it introduces new global scales for the sharing and management of environmental costs within a framework of neoliberal cost internalization. The analysis in this paper uses the concept of the “ecological state” (Duit, 2008) as a theoretical point of departure to examine the trans-scalar implications of such a carbon-and-conservation model on global governance structures toward a “global ecological state” (or global eco-state)

The technical mitigation potential of demand-side measures in the agri-food sector: a preliminary assessment of available measures

A number of studies have suggested that addressing greenhouse gas (GHG) emissions from agricultural production, or ‘supply-side emissions’, will be insufficient to reduce agri-food sector GHG emissions to limit the increase of global temperatures to well below 2o C. Recent studies have also suggested that ‘demandside measures’ related to food consumption, food value chains, and food loss and waste, will be necessary to reduce emissions and may have a larger technical mitigation potential than supply-side measures. This report assesses the availability of demand-side policies and measures, and looks at evidence of these measures’ impacts on behavior that directly results in emissions from the agri-food sector. Often discussed demand-side measures include ‘soft’ measures (e.g. health promotion initiatives, product labeling) and ‘hard’ measures (e.g. consumption taxes or subsidies). We review here the effectiveness of these measures for dietary change and reductions in food loss and waste, with a focus on developing countries, where agrifood emissions are projected to grow most rapidly and where the gaps in knowledge are largest. This report is linked to CCAFS Info Note "Shifting food consumption to mitigate climate change is critical to fulfilling the Paris Agreement, but how?" https://cgspace.cgiar.org/bitstream/handle/10568/77145/Info%20note%20Demand%20side%20mitigation%20Aug%2022%202016.pd

Colonial versus ancestral legacy: The assertion of culture and identity through public arts in Kirikiriroa/Hamilton

This thesis is an ethnography of Hamilton. It focuses on the role of public arts as a cultural regeneration tool and their function in shaping the community(s) in Kirikiriroa/Hamilton through building a sense of place and identity. As a qualitative study, I conducted nine semi- structured interviews with public art artists, art advocates and residents to explore the relational context within which the development and transmission of meaning takes place, a process which is central to culture and identity. The primary purpose of the research interviews was to gain insight into the factors that motivate arts organisers and planners to direct valuable limited resources into public art projects and its observable outcomes. The second purpose of the interviews, conducted while walking to public artworks in the city centre with six participants, was to examine the effect of public art on the public. My methods also include tracking press reviews, monitoring comments and posts on social media and institutional debates involving residents, artists, and public authorities concerning public arts. I also recorded data by taking photographs and recording field notes of my observations during and after the fieldwork process. Data gathering was also enhanced by the large-scale collection of written materials and resources, including public art publications and HCC policy documents. Taken together, these research methods allowed me to investigate whether Hamilton had achieved its goals in its cultural regeneration efforts. In my analysis, I discuss the role of public art and its association with place and consider how artworks may antagonise Māori-Pākehā relationships or otherwise emphasis residents’ sense of place. Biculturalism and monoculturalism narratives appear to dominate public arts with the purpose of invoking either a colonial legacy or ancestral legacy while the politics of multiculturalism continue to jockey for place. Colonial legacy refers to the glorifying of colonial achievements while ancestral legacy in this context refers to Māori assertion of history, culture and identity. Particularly, in this research, ancestral legacy belonging to local hapū, Ngāti Wairere. Participants’ narratives reveal four overarching themes, 1) the publics’ resistance to the making of colonial places through public art, 2) Ngāti Wairere struggles to assert ancestral legacy through public arts, 3) the need for ethnically diverse artworks to create and maintain ethnically diverse places, and 4) a yearning for a collective identity represented through public arts. Hamilton’s public artworks are variously perceived as a superficial representation of Māori culture, identity and history, a reminder of a colonial binary discourse, the colonised versus the coloniser, an assertion of either a Māori ancestral legacy or a colonial legacy or, minimally, a nod to multiculturalism. Nevertheless, my research shows that participants engagement with these artworks reveal a yearning for a local collective identity that is still a work in progress