Banking Leverage Procyclicality: A Theoretical Model Introducing Currency Diversification

The brutal adjustments to global banks’ balance sheets in the wake of the recent economic crisis have rekindled interest in the procyclicality of banking leverage. During economic bursts, the collateral value of banks decreases and their risk-taking capacity is reduced. Banks raise less funds and their leverage - defined as total assets over equity - goes down: the leverage is procyclical. The paper investigates the procyclicality of bank leverage when banks can borrow and invest in two different currencies, as with European banks. To the extent that shocks are asymmetric, we find that currency diversification of assets reduces the procyclicality of the leverage and that a floating exchange rate increases the risk-taking capacity of banks

Currency Diversification of Banks: A Spontaneous Buffer Against Financial Losses

The Basel Committee on Banking Supervision has introduced in December 2010 a Basel III framework for more resilient banks and banking system. We posit in this paper that, in addition to the current regulatory instruments currently under the review of authorities, the currency diversification of banks’ balance sheets can be a source of banking stability considering both assets and liabilities simultaneously. Our conclusions are based on a simplified definition of a globalized bank’s balance sheet. As banks’ balance sheets are expressed in domestic currency, our model implies an exchange rate conversion of each foreign component. Risks are introduced with stochastic processes in assets, liabilities and exchange rate. In accordance with the Basel III framework and the Basel III Leverage ratio, the bank’s leverage ratio is limited. Our model provides detailed information in each risk faced by global banks including foreign exchange risk. Although our conclusions depend on the variance covariance matrix of assets, liabilities and foreign exchange rate, our main results confirm the positive impact of currency diversification on banking stability considering the current banking system

How is the Constraint-Induced Movement Therapy affecting stroke patient’s quality of life? : A literature review

Stroke is one of most prevalent disease worldwide and its cost to society is immense. Most patients sustain some level of disability and dependence after stroke. A challenge in stroke rehabilitation is that patient enduring upper limb paresis develop compensation strategies to overcome pain and frustration from not being able to realize functional movement. This is called learned non-use. Taub understood from research on monkeys that preventing the use of the healthy upper limb supports recovery of the paretic limb. He developed a therapeutic protocol called Constrain-Induced Movement Therapy (CIMT) which shows promising (Taub, 1968). Based on ICF framework, rehabilitation should tend to bring therapeutic outcomes at the level of body functioning, activity and participation taking into consideration individual and environmental factors. This means that the ultimate goal of rehabilitation is to increase pa-tient’s quality of life. In this literature review how Constraint-Induced Movement Therapy or some adaptation of it affects stroke quality of life was studied. To that end in 2015 a re-search was conducted in PudMed, CINAHL, Cochrane Library and PEDro databases based on searching queries using combinations of keywords “Constraint-Induced Movement Ther-apy. Stroke Impact Scale and Quality of Life. From this searches 15 articles were selected for analysis. From the selected articles it appears that CIMT has a good therapeutic potential for the pa-tients eligible for the therapy. Patients whom may benefit from it must have mild hemi-paresis with some level of wrist and carpal extension as well as satisfactory cognitive func-tion (Mini Mental Scale evaluation > 24). Modified-CIMT using much shorter therapeutic sessions are as efficient as the original CIMT protocol which makes it safer to patient and more accessible to therapist in terms of logistic and resources. It appeared that quality of life was too often not addressed as a primary outcome but it is changing in the literature. From this review it seems that CIMT has a positive effect on quali-ty of life of stroke patients though really mild and mostly on the physical aspects of it like level of activity and realization of Activity of Daily Living (ADL). Patients would benefit from re-administration of the treatment and home based practice which here in Finland should be easy to implement.Aivoverenkiertohäiriön on yksi eniten esiintyvistä sairauksista maailmassa. Siitä aiheutuvat kustannukset yhteiskunnalle ovat erittäin korkeita. Suurimmalle osalle potilaista jää aivoverenkiertohäiriön jälkeen jokin tominnanrajoitus. Aivoverenkiertohäiriön jälkeisen kuntoutuksen haasteena on se, että potilas, jonka yläraaja on vammautunut, kehittää korvaavia käyttötapoja välttääkseen raajan toiminnanrajoituksesta aiheutuvaa turhautumista ja kipua. Tämä kutsutaan ns. opituksi käyttämättömyydeksi. Taubin mukaan apinoilla tehty tutkimus osoittaa, että terveen käden käytön estäminen auttaa vammatutuneen raajan parantumista. Hän on kehittänyt tehostetun käden käytön kuntoutusohjelman (Constraint- induced movement therapy, CIMT), jonka tulokset vaikuttavat lupaavilta (Taub, 1968). Perustuen ICF viitekehykseen, kuntoutuksen avulla pitäisi pyrkiä saavuttamaan tuloksia toimintakyvyn, aktiivisuuden ja osallistumisen tasolla mukaan lukien henkilökohtaiset ja ympäristötekijät. Tämä tarkoittaa, että päätavoitteena kuntoutuksessa on kuntoutujan elämälaadun koheneminen. Tässä kirjallisuuskatsauksessa on pyritty vastaamaan kysymykseen miten tehostetun käden käytön kuntoutusohjelma tai sen sovellutukset vaikuttavat aivoverenkiertohäiriöpotilaan elämänlaatuun. Artikkeleista ilmenee, että tehostetun käden käytön kuntoutuksesta vaikuttavat hyötyvän potilaat, kenellä on lievä toispuolihalvaus ja ranteen ojennus mahdollista sekä tyydyttävällä tasolla oleva kognitiivinen suorituskyky (arvioituna Mini Mental Scalen avulla). Modifioidulla tehostetun käden käytön kuntoutusohjelman avulla toteutettu kuntoutus vaikuttaa olevan yhtä tehokasta kuin alkuperäinen menetelmä. Katsauksen tutkimuksissa elämän laatu ei ole ensisijaisena tulosmuuttujana, mutta se on muuttamassa kirjallisuudessa. Tästä kirjallisuuskatsauksesta ilmenee, että tehostetun käden käytön kuntoutusohjelmalla on myönteinen, mutta melko vähäinen vaikutus elämänlaatuun aivoverenkiertohäiriöpotilailla koskien ensisijaisesti elämänlaadun fyysisiä tekijöitä, kuten aktiivisuutta päivittäisiä toimintoja. Potilaat voisivat hyötyä hoidon uudelleenjärjestelyistä ja kotona tehtävästä harjoittelusta. Tämän pitäisi olla helppoa toteuttaa Suomessa

Banks' Leverage Procyclicality: Does US Dollar Diversification Really Matter?

Assets of banks located in France are mainly denominated in euro and in US dollar. Currency diversification, which measures how much of assets are denominated in US dollar, implies a credit risk diversification and a valuation effect on assets. As currency diversification affects directly the total converted value of assets, it changes banks’ debt capacity and their resilience to economic shocks. Thereby, currency diversification of assets should affect leverage responsiveness to the value of assets, namely the leverage procyclicality. Using innovative data on credit institutions located in France between1999 and 2014, we examine whether US dollar diversification of assets is pertinent for the analysis of leverage procyclicality. Focusing on investment banks, our results suggest that the net effect of US dollar diversification is dominated by the valuation effect. After extracting the valuation effect of diversification, it also posits the importance of two opposite effects in leverage procyclicality. Additionally, our results confirms the theoretical prediction where currency mismatch does not affect leverage procyclicality. Implicitly it supports the idea that leverage procyclicality is only driven by assets. Finally, our conclusions support the idea that US dollar diversification is relevant to the analysis of leverage procyclicality especially for the post crisis period

Banks' Capital Structure and US dollar Diversification of Assets: Does Reduction in Systemic Risk Offset Agency Costs?

Multinational Corporation (MNCs) should gain advantage from international diversification by lowering their systemic risk and reducing their bankruptcy cost. Hence, internationalization should induce larger leverage. However, it may imply additional agency costs due to wider informal gaps and higher cost of investigation induced by the multiplication of markets. To examine how currency diversification of asset may change the bank’s systemic risk, we provide a theoretical framework based on relative CAPM by introducing explicitly the exchange rate risk. Due to exchange rate dynamics asset diversification may reduce systemic risk even through the two assets are perfectly correlated.Using innovative micro data on credit institutions located in France between 1999 and 2014 we expand our analysis to the net effect of US dollar diversification of assets. Contrary to past studies, this measure of financial internationalization take into consideration the exchange rate risk. Although our results highlight the two opposite effects of diversification, they posit the importance of international agency costs in the capital structure decision