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

Voting Characteristics of Individuals With Traumatic Brain Injury

Voting is the foundation of democracy. Limited data exist about voting characteristics of individuals with neurologic impairment including those living with a traumatic brain injury (TBI). To statistically examine voting characteristics using a convenience sample of registered voters with TBI during elections held in Mecklenburg County, North Carolina—2007, 2008. Data were collected on 51 participants with TBI during May 2007, 2008 general, and 2008 Presidential Election. (i) There was a significant difference between the Competence Assessment Tool for Voting (CAT‐V) total score of participants with TBI who voted and the CAT‐V total score of participants with TBI who did not vote and the CAT‐V total score predicted voting; (ii) the age of the participants with TBI was predictive of voting; and (iii) being married was inversely related to voting. We find that there is variation in voting even among this small sample interviewed for the present study, and that the variation is predictable. Those with the highest CAT‐Vs are most likely to vote. In addition, we find that traditional predictors of voting simply are not predictors among this TBI group, and even one, whether the person is married, has a negative effect on voting

Reducing the environmental impact of surgery on a global scale: systematic review and co-prioritization with healthcare workers in 132 countries

Abstract Background Healthcare cannot achieve net-zero carbon without addressing operating theatres. The aim of this study was to prioritize feasible interventions to reduce the environmental impact of operating theatres. Methods This study adopted a four-phase Delphi consensus co-prioritization methodology. In phase 1, a systematic review of published interventions and global consultation of perioperative healthcare professionals were used to longlist interventions. In phase 2, iterative thematic analysis consolidated comparable interventions into a shortlist. In phase 3, the shortlist was co-prioritized based on patient and clinician views on acceptability, feasibility, and safety. In phase 4, ranked lists of interventions were presented by their relevance to high-income countries and low–middle-income countries. Results In phase 1, 43 interventions were identified, which had low uptake in practice according to 3042 professionals globally. In phase 2, a shortlist of 15 intervention domains was generated. In phase 3, interventions were deemed acceptable for more than 90 per cent of patients except for reducing general anaesthesia (84 per cent) and re-sterilization of ‘single-use’ consumables (86 per cent). In phase 4, the top three shortlisted interventions for high-income countries were: introducing recycling; reducing use of anaesthetic gases; and appropriate clinical waste processing. In phase 4, the top three shortlisted interventions for low–middle-income countries were: introducing reusable surgical devices; reducing use of consumables; and reducing the use of general anaesthesia. Conclusion This is a step toward environmentally sustainable operating environments with actionable interventions applicable to both high– and low–middle–income countries

Reducing the environmental impact of surgery on a global scale: systematic review and co-prioritization with healthcare workers in 132 countries

Background Healthcare cannot achieve net-zero carbon without addressing operating theatres. The aim of this study was to prioritize feasible interventions to reduce the environmental impact of operating theatres. Methods This study adopted a four-phase Delphi consensus co-prioritization methodology. In phase 1, a systematic review of published interventions and global consultation of perioperative healthcare professionals were used to longlist interventions. In phase 2, iterative thematic analysis consolidated comparable interventions into a shortlist. In phase 3, the shortlist was co-prioritized based on patient and clinician views on acceptability, feasibility, and safety. In phase 4, ranked lists of interventions were presented by their relevance to high-income countries and low–middle-income countries. Results In phase 1, 43 interventions were identified, which had low uptake in practice according to 3042 professionals globally. In phase 2, a shortlist of 15 intervention domains was generated. In phase 3, interventions were deemed acceptable for more than 90 per cent of patients except for reducing general anaesthesia (84 per cent) and re-sterilization of ‘single-use’ consumables (86 per cent). In phase 4, the top three shortlisted interventions for high-income countries were: introducing recycling; reducing use of anaesthetic gases; and appropriate clinical waste processing. In phase 4, the top three shortlisted interventions for low–middle-income countries were: introducing reusable surgical devices; reducing use of consumables; and reducing the use of general anaesthesia. Conclusion This is a step toward environmentally sustainable operating environments with actionable interventions applicable to both high– and low–middle–income countries

Do all-equity firms destroy value by holding cash?

Empirical evidence shows that as of 2006, nearly every fifth large U.S. public corporation was all-equity financed and that the corresponding average cash holding were nearly twice as high as of the average U.S. firm. This paper therefore presents a simple real-options model to characterize the value of cash for all-equity financed firms and analyze its impact on a firm's investment decision. The model shows that precautionary saving may lead to a delay in investment policy compared to the benchmark of full external financing. This is because saving is an option to invest at a lower price in the future and this option has an additional time value, thereby delaying optimal investment. In the context of growth options and external financing frictions cash has extra value but this value is mostly negatively related to volatility. Testing empirically whether all-equity firms destroy value by holding that much cash, I show that on average the market values cash approximately at par. Moreover, cash is rather valued at a premium if the presence of growth opportunities is being controlled for

Do all-equity firms destroy value by holding cash?

Empirical evidence shows that as of 2006, nearly every fifth large U.S. public corporation was all-equity financed and that the corresponding average cash holding were nearly twice as high as of the average U.S. firm. This paper therefore presents a simple real-options model to characterize the value of cash for all-equity financed firms and analyze its impact on a firm's investment decision. The model shows that precautionary saving may lead to a delay in investment policy compared to the benchmark of full external financing. This is because saving is an option to invest at a lower price in the future and this option has an additional time value, thereby delaying optimal investment. In the context of growth options and external financing frictions cash has extra value but this value is mostly negatively related to volatility. Testing empirically whether all-equity firms destroy value by holding that much cash, I show that on average the market values cash approximately at par. Moreover, cash is rather valued at a premium if the presence of growth opportunities is being controlled for

Does tradeoff theory explain high-frequency debt issuers?

Over the past forty years, one-third of the publicly listed industrial firms in the U.S. raised two- thirds of all public and private debts (net of debt rollovers). We use these high-frequency debt issuers (HFIs) - large and highly leveraged, investment-intensive firms with low Tobin's Q - to test tradeoff theory of -debt financing. Relative to low-frequency net-debt issuers (LFIs) - small, low-leveraged, R&D-intensive firms with high Q - HFIs appear to face low total and fixed issue costs. Under dynamic tradeoff theory, HFIs should therefore exhibit smaller issue sizes, lower leverage ratio volatility, and higher speed-of-adjustment to deviations from target leverage ratios than LFIs, which our evidence fails to support. However, consistent with dynamic financing and investment models, over-leveraged firms occasionally issue debt followed by equity issues and leverage ratio reductions. Finally, we show that CEO equity ownership and stock-based compensation are both higher for HFIs than for other sample firms

Rating through-the-cycle: What does the concept imply for rating stability and accuracy? IMF Working Paper

Abstract Credit rating agencies face a difficult trade-off between delivering both accurate and stable ratings. In particular, its users have consistently expressed a preference for rating stability, driven by the transactions costs induced by trading when ratings change frequently. Rating agencies generally assign ratings on a through-the-cycle basis whereas banks' internal valuations are often based on a point-in-time performance, that is they are related to the current value of the rated entity's or instrument's underlying assets. This paper compares the two approaches and assesses their impact on rating stability and accuracy. We find that while through-the-cycle ratings are initially more stable, they are prone to rating cliff effects and also suffer from inferior performance in predicting future defaults. This is because they are typically smooth and delay rating changes. Using a through-the-crisis methodology that uses a more stringent stress test goes halfway toward mitigating cliff effects, but is still prone to discretionary rating change delays. JEL Classification Numbers: G20, G24, G2

Asset Securitization and Optimal Retention

This paper builds on recent research by Fender and Mitchell (2009) who show that if financial institutions securitize loans, retaining an interest in the equity tranche does not always induce the securitizer to diligently screen borrowers ex ante. We first determine the conditions under which this scenario becomes binding and further illustrate the implications for capital requirements. We then propose an extension to the existing model and also solve for optimal retention size. This also allows us to capture feedback effects from capital requirements into the maximization problem. Preliminary results show that equity tranche retention continues to best incentivize loan screening.Asset management;Capital;Economic models;Financial institutions;screening, probability, probabilities, equation, functional form, numerical analysis, exhaustion, probability distributions, optimization, correlation, correlations