Understanding Systemic Risk: The Trade-Offs between Capital, Short-Term Funding and Liquid Asset Holdings

We offer a multi-period systemic risk assessment framework with which to assess recent liquidity and capital regulatory requirement proposals in a holistic way. Following Morris and Shin (2009), we introduce funding liquidity risk as an endogenous outcome of the interaction between market liquidity risk, solvency risk, and the funding structure of banks. To assess the overall impact of different mix of capital and liquidity, we simulate the framework under a severe but plausible macro scenario for different balance-sheet structures. Of particular interest, we find that (1) capital has a decreasing marginal effect on systemic risk, (2) increasing capital alone is much less effective in reducing liquidity risk than solvency risk, (3) high liquid asset holdings reduce the marginal effect of increasing short term liability on systemic risk, and (4) changing liquid asset holdings has little effect on systemic risk when short term liability is sufficiently low.Financial stability; Financial system regulation and policies

Macroprudential Regulation and Systemic Capital Requirements

In the aftermath of the financial crisis, there is interest in reforming bank regulation such that capital requirements are more closely linked to a bank's contribution to the overall risk of the financial system. In our paper we compare alternative mechanisms for allocating the overall risk of a banking system to its member banks. Overall risk is estimated using a model that explicitly incorporates contagion externalities present in the financial system. We have access to a unique data set of the Canadian banking system, which includes individual banks' risk exposures as well as detailed information on interbank linkages including OTC derivatives. We find that systemic capital allocations can differ by as much as 50% from 2008Q2 capital levels and are not related in a simple way to bank size or individual bank default probability. Systemic capital allocation mechanisms reduce default probabilities of individual banks as well as the probability of a systemic crisis by about 25%. Our results suggest that financial stability can be enhanced substantially by implementing a systemic perspective on bank regulation.Financial stability

Upravljanje otporno na kvarove asinkronog motora zasnovano na deskriptorskom observeru

This paper presents an active Fault Tolerant Control (FTC) strategy for induction motor (IM) that ensures Field Oriented Control (FOC) and offset the effect of the sensor faults despite of the load torque disturbance. The proposed approach uses a fuzzy descriptor approach to estimate simultaneously the system state and the sensor fault. The physical model of IM is approximated by the Takagi-Sugeno (T-S) fuzzy technique in the synchronous d-q rotating frame with field-oriented control strategy. The stability conditions are analyzed using Lyapunov theory. The controller and observers gains are calculated by solving a set of Linear Matrix Inequalities (LMIs). Finally, the effectiveness of the proposed strategy have been illustrated in simulation and experimental results.U ovom radu je predstavljena strategija upravljanja otpornog na kvarove za asinkroni motor koja omogućuje vektorsko upravljanje bez pogreške uslijed kvara senzora i postojećeg poremećaja momenta tereta. Predloženi pristup koristi neizraziti deskriptor za estimaciju stanja sustava i kvara senzora. Fizikalni model asinkronog motora s vektorskim upravljanjem aproksimiran je korištenjem Takagi-Sugeno modela u rotirajućem d-q koordinatnom sustavu. Uvjeti stabilnosti analizirani us korištenjem Ljapunovljeve teorije. Konstante pojačanja regulatora i obzervera su izračunati rješavanjem skupa linearnih matričnih nejednadžbi. Učinkovitost predložene strategije je ilustrirana simulacijskim i eksperimentalnim rezultatima

It Takes Two to Tango. La fusion : exercice de deux options réelles

We analyze mergers from the standpoint of the merging firms. We show that the date of completion of a decentralized merger is suboptimal. The reason is that the merger is a simultaneous decision by two firms, and that its date is therefore determined by their strategic considerations. We model the merger as the simultaneous exercise of two real options and introduce two bargaining mechanisms for the division of the merger rent : the Stackelberg game and the Rubinstein game. In the first, which applies to hostile mergers, all the bargaining power rests with one firm. In the second, which is more suitable for assessing friendly mergers, neither firm has a negotiating advantage. In both cases, we show that the merger occurs at a date that is Pareto suboptimal because too delayed. This phenomenon is more pronounced in hostile mergers than in friendly mergers.Nous présentons une analyse des fusions du point de vue des firmes fusionnées. Nous montrons que la date de réalisation d ’ une fusion décentralisée est sous optimale. Ce résultat provient du fait que la fusion est la décision simultanée de deux firmes et que sa date résulte donc de considérations stratégiques de leur part. Nous modélisons la fusion comme l’exercice simultané de deux options réelles et introduisons deux mécanismes de négociation du partage de la rente de fusion : le jeu de Stackelberg et le jeu de Rubinstein. Dans le premier, qui correspond aux fusions hostiles, une des firmes a la totalité du pouvoir de négociation. Dans le second, qui correspond plutôt à des fusions amicales, aucune des firmes n’a un avantage en termes de pouvoir de négociation. Dans les deux cas, nous montrons que la fusion se produit à une date qui est sous optimale au sens de Pareto car trop tardive. Ce phénomène est plus marqué dans le cas des fusions hostiles que dans celui des fusions amicales.Lasserre Pierre, Souissi Moez. It Takes Two to Tango. La fusion : exercice de deux options réelles. In: Économie & prévision, n°178-179, 2007-2-3. pp. 51-65

Macroprudential capital requirements and systemic risk

In the aftermath of the financial crisis, there is interest in reforming bank regulation such that capital requirements are more closely linked to a bank’s contribution to the overall risk of the financial system. In our paper we compare alternative mechanisms for allocating the overall risk of a banking system to its member banks. Overall risk is estimated using a model that explicitly incorporates contagion externalities present in the financial system. We have access to a unique data set of the Canadian banking system, which includes individual banks’ risk exposures as well as detailed information on interbank linkages including OTC derivatives. We find that macroprudential capital allocations can differ by as much as 50% from observed capital levels and are not trivially related to bank size or individual bank default probability. Macroprudential capital allocation mechanisms reduce default probabilities of individual banks as well as the probability of a systemic crisis by about 25%. Our results suggest that financial stability can be enhanced substantially by implementing a systemic perspective on bank regulation.N

What Matters in Determining Capital Surcharges for Systemically Important Financial Institutions?

One way of internalizing the externalities that each individual bank imposes on the rest of the financial system is to impose capital surcharges on them in line with their systemic importance. Given the complexity of the financial system and the resulting difficulties in measuring systemic importance, it is sometimes argued that higher capital surcharges should be applied to larger banks, abstracting from other factors like interconnectedness. In this paper, the authors consider different network structures of the banking system that are characterized by two different centrality measures. Their main finding is that size alone is not always a good proxy for systemic importance: it must be supplemented with detailed information on interbank exposures. A relatively small bank playing an outsized role in the interbank market might be more systemic, and thus garner a higher capital surcharge, than a less-connected bank of somewhat larger size. Alternatively, if the centrality of banks in an interbank network is positively correlated with their size, then proxies of a bank’s systemic importance largely based on size are sufficient indicators.Financial system regulation and policies

Robust Sensor Fault-Tolerant Control of Induction Motor Drive

International audienceThis paper presents an active fuzzy fault-tolerant control (FTC) strategy for induction motor that ensures the performances of the field-oriented control (FOC). In the proposed approach, a robust controller is synthesized in order to compensate for both the resistance variation, the load torque disturbance, and the sensor fault. The physical model of induction motor is approximated by the Takagi-Sugeno (T-S) fuzzy technique in the synchronous d-q rotating frame. Fuzzy descriptor observer is introduced to estimate simultaneously the system state and the sensor faults. A robust feedback state tracking control is proposed to guarantee the control performances by minimizing the effect of the load torque and the uncertainties. The proposed controller is based on a T-S reference model in which a desired trajectory has been specified. The performances of the trajectory tracking are analyzed using the Lyapunov theory and the optimization. Observer and controller gains are obtained by solving a set of LMIs constraint. To highlight the effectiveness of the proposed control simulation, results are introduced for a 1.5 KW induction motor