Could a CAMELS downgrade model improve off-site surveillance?

The Federal Reserve’s off-site surveillance system includes two econometric models that are collectively known as the System for Estimating Examination Ratings (SEER). One model, the SEER risk rank model, uses the latest financial statements to estimate the probability that each Fed-supervised bank will fail in the next two years. The other component, the SEER rating model, uses the latest financial statements to produce a “shadow” CAMELS rating for each supervised bank. Banks identified as risky by either model receive closer supervisory scrutiny than other state-member banks.> Because many of the banks flagged by the SEER models have already tumbled into poor condition and, hence, would already be receiving considerable supervisory attention, we developed an alternative model to identify safe-and-sound banks that potentially are headed for financial distress. Such a model could help supervisors allocate scarce on- and off-site resources by pointing out banks not currently under scrutiny that need watching.> It is possible, however, that our alternative model improves little over the current SEER framework. All three models—the SEER risk rank model, the SEER rating model, and our downgrade model—produce ordinal rankings based on overall risk. If the financial factors that explain CAMELS downgrades differ little from the financial factors that explain failures or CAMELS ratings, then all three models will produce similar risk ratings and, hence, similar watch lists of one- and two-rated banks.> We find only slight differences in the ability of the three models to spot emerging financial distress among safe-and-sound banks. In out-of-sample tests for 1992 through 1998, the watch lists produced by the downgrade model outperform the watch lists produced by the SEER models by only a small margin. We conclude that, in relatively tranquil banking environments like the 1990s, a downgrade model adds little value in off-site surveillance. We caution, however, that a downgrade model might prove useful in more turbulent banking times.Bank supervision

Can feedback from the jumbo-CD market improve off-site surveillance of community banks?

We examine the value of feedback from the jumbo-certificate-of-deposit (CD) market in the off-site surveillance of community banks. Using accounting data, we construct proxies for default premiums on jumbo CDs. Then, we produce rank orderings of community banks -- defined as institutions holding less than $500 million in assets (constant 1999 dollars) -- based on these proxies. Next, we use an econometric surveillance model to generate rank orderings based on the probability of encountering financial distress. Finally, we compare these rank orderings as tools for flagging emerging problems. Our comparisons include eight out-of-sample test windows during the 1990s. We find that feedback from the jumbo-CD market would have added little value in community-bank surveillance during our sample period. Specifically, rank orderings based on output from the econometric model significantly outperformed rank orderings based on jumbo-CD default premiums. More important, the jumbo-CD orderings improved little over a random ordering. Other attempts to extract risk signals from the jumbo-CD data yielded similar results. Taken together, our findings validate current surveillance practices. We conclude by arguing that the robust economic environment of the 1990s probably plays a large role in our results.Community banks ; Bank supervision

Can feedback from the jumbo-CD market improve bank surveillance?

We examine the value of jumbo certificate-of-deposit (CD) signals in bank surveillance. To do so, we first construct proxies for default premiums and deposit runoffs and then rank banks based on these risk proxies. Next, we rank banks based on the output of a logit model typical of the econometric models used in off-site surveillance. Finally, we compare jumbo-CD rankings and surveillance-model rankings as tools for predicting financial distress. Our comparisons include eight out-of-sample test windows during the 1990s. We find that rankings obtained from jumbo-CD data would not have improved on rankings obtained from conventional surveillance tools. More importantly, we find that jumbo-CD rankings would not have improved materially over random rankings of the sample banks. These findings validate current surveillance practices and, when viewed with other recent empirical tests, raise questions about the value of market signals in bank surveillance.Finance ; Banks and banking ; Bank supervision

The role of a CAMEL downgrade model in bank surveillance

This article examines the potential contribution to bank supervision of a model designed to predict which banks will have their supervisory ratings downgraded in future periods. Bank supervisors rely on various tools of off-site surveillance to track the condition of banks under their jurisdiction between on-site examinations, including econometric models. One of the models that the Federal Reserve System uses for surveillance was estimated to predict bank failures. Because bank failures have been so rare during the last decade, the coefficients on this model have been "frozen" since 1991. Each quarter the surveillance staff at the Board of Governors provide the supervision staff in the Reserve Banks the probabilities of failure by the banks subject to Fed supervision, based on the coefficients of this bank failure model and the latest call report data for each bank. The number of banks downgraded to problem status in recent years has been substantially larger than the number of bank failures. During a period of few bank failures, the relevance of this bank failure model for surveillance depends to some extent on the accuracy of the model in predicting which banks will have their supervisory ratings downgraded to problem status in future periods. This paper compares the ability of two models to predict downgrades of supervisory ratings to problem status: the Board staff model, which was estimated to predict bank failures, and a model estimated to predict downgrades of supervisory ratings. We find that both models do about as well in predicting downgrades of supervisory ratings for the early 1990s. Over time, however, the ability of the downgrade model to predict downgrades improves relative to that of the model estimated to predict failures. This pattern reflects the value of using a model for surveillance that can be re-estimated frequently. We conclude that the downgrade model may prove to be a useful supplement to the Board's model for estimating failures during periods when most banks are healthy, but that the downgrade model should not be considered a replacement for the current surveillance framework.Bank supervision

Can feedback from the jumbo CD market improve bank surveillance?

Banks and banking

Demonstration of a state-insensitive, compensated nanofiber trap

We report the experimental realization of an optical trap that localizes single Cs atoms ≃ 215 nm from surface of a dielectric nanober. By operating at magic wavelengths for pairs of counterpropagating red- and blue-detuned trapping beams, dierential scalar light shifts are eliminated, and vector shifts are suppressed by ≈ 250. We thereby measure an absorption linewidth Γ/2π = 5.7 ± 0.1 MHz for the Cs 6S_(1/2), F = 4 → 6P_(3/2), F' = 5 transition, where Γ_0/2π = 5.2 MHz in free space. Optical depth d ≃ 66 is observed, corresponding to an optical depth per atom d_1 ≃ 0.08. These advances provide an important capability for the implementation of functional quantum optical networks and precision atomic spectroscopy near dielectric surfaces

The Rest-Frame Optical Properties of z~3 Galaxies

We present the results of a near-infrared imaging survey of z~3 Lyman Break Galaxies (LBGs). The survey covers a total of 30 arcmin^2 and includes 118 photometrically selected LBGs with K_s band measurements, 63 of which also have J band measurements, and 81 of which have spectroscopic redshifts. Using the distribution of optical {\cal R} magnitudes from previous work and {\cal R}-K_s colors for this sub-sample, we compute the rest-frame optical luminosity function of LBGs. At the brightest magnitudes, where it is fairly well constrained, this luminosity function strikingly exceeds locally determined optical luminosity functions. The V-band luminosity density of only the observed bright end of the z~3 LBG luminosity function already approaches that of all stars in the local universe. For the 81 galaxies with measured redshifts, we investigate the range of LBG stellar populations implied by the photometry which generally spans the range 900--5500 AA in the rest-frame. While there are only weak constraints on the parameters for most of the individual galaxies, there are strong trends in the sample as a whole. A unified scenario which accounts for the observed trends in bright LBGs is one in which a relatively short period of very rapid star-formation (hundreds of M_sun/yr) lasts for roughly 50--100 Myr, after which both the extinction and star-formation rate are considerably reduced and stars are formed at a more quiescent, but still rapid, rate for at least a few hundred Myr. In our sample, a considerable fraction (~20%) of the LBGs have best-fit star-formation ages ~> 1 Gyr, implied stellar masses of ~> 10^10 M_sun, and are still forming stars at \~30 M_sun/yr.Comment: 61 pages including 19 figures. Accepted for publication in Ap

Cystic fibrosis mice carrying the missense mutation G551D replicate human genotype phenotype correlations

We have generated a mouse carrying the human G551D mutation in the cystic fibrosis transmembrane conductance regulator gene (CFTR) by a one-step gene targeting procedure. These mutant mice show cystic fibrosis pathology but have a reduced risk of fatal intestinal blockage compared with 'null' mutants, in keeping with the reduced incidence of meconium ileus in G551D patients. The G551D mutant mice show greatly reduced CFTR-related chloride transport, displaying activity intermediate between that of cftr(mlUNC) replacement ('null') and cftr(mlHGU) insertional (residual activity) mutants and equivalent to approximately 4% of wild-type CFTR activity. The long-term survival of these animals should provide an excellent model with which to study cystic fibrosis, and they illustrate the value of mouse models carrying relevant mutations for examining genotype-phenotype correlations

Dense Cloud Ablation and Ram Pressure Stripping of the Virgo Spiral NGC 4402

We present optical, HI and radio continuum observations of the highly inclined Virgo Cluster Sc galaxy NGC 4402, which show evidence for ram-pressure stripping and dense cloud ablation. VLA HI and radio continuum maps show a truncated gas disk and emission to the northwest of the main disk emission. In particular, the radio continuum emission is asymmetrically extended to the north and skewed to the west. The Halpha image shows numerous HII complexes along the southern edge of the gas disk, possibly indicating star formation triggered by the ICM pressure. BVR images at 0.5" resolution obtained with the WIYN Tip-Tilt Imager show a remarkable dust lane morphology: at half the optical radius, the dust lane of the galaxy curves up and out of the disk, matching the HI morphology. Large dust plumes extend upward for ~1.5 kpc from luminous young star clusters at the SE edge of the truncated gas disk. These star clusters are very blue, indicating very little dust reddening, which suggests dust blown away by an ICM wind at the leading edge of the interaction. To the south of the main ridge of interstellar material, where the galaxy is relatively clean of gas and dust, we have discovered 1 kpc long linear dust filaments with a position angle that matches the extraplanar radio continuum tail; we interpret this angle as the projected ICM wind direction. One of the observed dust filaments has an HII region at its head. We interpret these dust filaments as large, dense clouds which were initially left behind as the low-density ISM is stripped, but are then ablated by the ICM wind. These results provide striking new evidence on the fate of molecular clouds in stripped cluster galaxies.Comment: 17 pages, 4 figures, accepted for publication in AJ. See ftp://ftp.astro.yale.edu/pub/hugh/papers/crowl_n4402.ps.gz for a version with high-resolution figure