A Network Model of Financial System Resilience

We examine the role of macroeconomic fluctuations, asset market liquidity, and network structure in determining contagion and aggregate losses in a financial system. Systemic instability is explored in a financial network comprising three distinct, but interconnected, sets of agents – domestic banks, international financial institutions, and firms. Calibrating the model to advanced country banking sector data, we obtain sensible aggregate loss distributions which are bimodal in nature. We demonstrate how systemic crises may occur and analyze how our results are influenced by firesale externalities and the feedback effects from curtailed lending in the macroeconomy. We also illustrate the resilience of our model financial system to stress scenarios with sharply rising corporate default rates and falling asset prices.Contagion, Financial crises, Network models, Systemic risk

A Network Model of Financial System Resilience

We examine the role of macroeconomic fluctuations, asset market liquidity, and network structure in determining contagion and aggregate losses in a financial system. Systemic instability is explored in a financial network comprising three distinct, but interconnected, sets of agents – domestic banks, international financial institutions, and firms. Calibrating the model to advanced country banking sector data, we obtain sensible aggregate loss distributions which are bimodal in nature. We demonstrate how systemic crises may occur and analyze how our results are influenced by firesale externalities and the feedback effects from curtailed lending in the macroeconomy. We also illustrate the resilience of our model financial system to stress scenarios with sharply rising corporate default rates and falling asset prices

Funding Liquidity Risk in a Quantitative Model of Systemic Stability

We demonstrate how the introduction of liability-side feedbacks affects the properties of a quantitative model of systemic risk. The preliminary version of the model, which is still in its development phase, is based on detailed balance sheets for UK banks and encompasses macro-credit risk, interest and non-interest income risk, network interactions, and feedback effects. Funding liquidity risk is introduced by allowing for rating downgrades and incorporating a simple framework in which concerns over solvency, funding profile and confidence may trigger the outright closure of funding markets. In presenting results, we focus on how policymakers could use the model with reference to both aggregate distributions and analysis of a scenario in which large losses at some banks can be exacerbated by liability-side feedbacks, leading to system-wide instability.

Extratropical cyclones and the projected decline of winter Mediterranean precipitation in the CMIP5 models

The Mediterranean region has been identified as a climate change "hot-spot" due to a projected reduction in precipitation and fresh water availability which has potentially large socio-economic impacts. To increase confidence in these projections, it is important to physically understand how this precipitation reduction occurs. This study quantifies the impact on winter Mediterranean precipitation due to changes in extratropical cyclones in 17 CMIP5 climate models. In each model, the extratropical cyclones are objectively tracked and a simple approach is applied to identify the precipitation associated to each cyclone. This allows us to decompose the Mediterranean precipitation reduction into a contribution due to changes in the number of cyclones and a contribution due to changes in the amount of precipitation generated by each cyclone. The results show that the projected Mediterranean precipitation reduction in winter is strongly related to a decrease in the number of Mediterranean cyclones. However, the contribution from changes in the amount of precipitation generated by each cyclone are also locally important: in the East Mediterranean they amplify the precipitation trend due to the reduction in the number of cyclones, while in the North Mediterranean they compensate for it. Some of the processes that determine the opposing cyclone precipitation intensity responses in the North and East Mediterranean regions are investigated by exploring the CMIP5 inter-model spread

Glutamine versus Ammonia Utilization in the NAD Synthetase Family

NAD is a ubiquitous and essential metabolic redox cofactor which also functions as a substrate in certain regulatory pathways. The last step of NAD synthesis is the ATP-dependent amidation of deamido-NAD by NAD synthetase (NADS). Members of the NADS family are present in nearly all species across the three kingdoms of Life. In eukaryotic NADS, the core synthetase domain is fused with a nitrilase-like glutaminase domain supplying ammonia for the reaction. This two-domain NADS arrangement enabling the utilization of glutamine as nitrogen donor is also present in various bacterial lineages. However, many other bacterial members of NADS family do not contain a glutaminase domain, and they can utilize only ammonia (but not glutamine) in vitro. A single-domain NADS is also characteristic for nearly all Archaea, and its dependence on ammonia was demonstrated here for the representative enzyme from Methanocaldococcus jannaschi. However, a question about the actual in vivo nitrogen donor for single-domain members of the NADS family remained open: Is it glutamine hydrolyzed by a committed (but yet unknown) glutaminase subunit, as in most ATP-dependent amidotransferases, or free ammonia as in glutamine synthetase? Here we addressed this dilemma by combining evolutionary analysis of the NADS family with experimental characterization of two representative bacterial systems: a two-subunit NADS from Thermus thermophilus and a single-domain NADS from Salmonella typhimurium providing evidence that ammonia (and not glutamine) is the physiological substrate of a typical single-domain NADS. The latter represents the most likely ancestral form of NADS. The ability to utilize glutamine appears to have evolved via recruitment of a glutaminase subunit followed by domain fusion in an early branch of Bacteria. Further evolution of the NADS family included lineage-specific loss of one of the two alternative forms and horizontal gene transfer events. Lastly, we identified NADS structural elements associated with glutamine-utilizing capabilities

Real-Time Gross Settlement and hybrid payment systems: a comparison

This paper contrasts Real-Time Gross Settlement and hybrid payment systems that are based on payment offset, using a two-period, multi-bank model. The comparison is performed according to two criteria: liquidity needs and speed of settlement. We assume that the existence of a payment is common knowledge but that the specific degree of time-criticality of a payment is the private information of the bank sending the payment. Hybrid payment systems are shown to outperform Real-Time Gross Settlement when payments are offset in the first period and when they are offset in both periods. This suggests that in a hybrid system, the offsetting facility should be in operation all day, or, at the very least, for some time after the system opens in the morning. A system in which the offsetting facility was only switched on late in the day would not necessarily be preferred to Real-Time Gross Settlement. These results are shown to be robust to changes in the transparency of the central queue of payments awaiting offset. However, this robustness may not hold with different forms of information asymmetry.