Financial safety nets and incentive structures in Latin America

The literature on safety nets has become technically more precise by drawing on advances in contract theory and optimal governance structure. This paper begins with a treatment of some aspects of the theory. The author's approach draws more on institutional economics, and more precisely on the approach taken by Kindleberger (1978), in the sense that he believes the design of good financial safety nets for Latin America depends upon an understanding of the way that formal ex-ante safety nets have broken down during times of crisis over the past one hundred years. In this paper then author explores issues surrounding safety nets for financial systems in small open economies like those in Latin America. The starting point in Section 2 is the idea that asymmetric information will generally restrict the scope for lending to potential borrowers. Section 3 shows that government regulation of financial intermediaries can frequently lower the cost of lending. Section 4 discusses the creation of central banks in Latin America in the 1920s as an innovation to promote financial deepening. Section 5 shows that the extension of the safety net to depositors is a relatively new and untested development. Section 6 concludes with a discussion of the design of safety nets that takes into account the principles developed in the paper.Financial Crisis Management&Restructuring,Payment Systems&Infrastructure,Financial Intermediation,Banks&Banking Reform,Labor Policies,Financial Intermediation,Financial Crisis Management&Restructuring,Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform

Transforming Bad Banks into Good Banks: Lessons from the Chilean Financial Crisis

This paper provides a narrative account of the 1980s Chilean banking crisis. The Chilean crisis saw the nationalization of the two largest financial conglomerates and resulted in more than half of the financial system’s assets and liabilities falling under direct control of the government. The paper provides details of the bank rescue measures as well as the resolution of the banks' nonperforming debt problem. By providing a detailed chronology of the financial crisis, the paper highlights the evolutionary process that characterized the interventions taken by the Chilean authorities to restore the financial system to solvency. Despite the pessimism that accompanied the early stages of the banking crisis, the fifteen-year process of intervention, restructuring, and recapitalization left the financial system well-positioned to finance Chile’s economic growth, which averaged six percent per year (in real terms) for the 20 years following 1985.

Measuring the Determinants of Average and Marginal Bank Interest Rate Spreads in Chile, 1994-2001

The study of bank interest rate spreads is central to our understanding of the process of financial intermediation. Data limitations generally restrict empirical analyses to interest rate spreads that are constructed from bank income statements and balance sheets. In this paper we make use of a data set that allows us directly to compute interest rate spreads based on individual bank loan and deposit rates reported on a monthly basis to the Central Bank of Chile. The information is disaggregated by unit of account (peso, inflation-indexed, and dollar) over the period 1994-2001. We find that the estimated impacts of industry concentration, business cycle variables, and monetary policy variables differ markedly between interest rate spreads based on balance sheet data and interest rate spreads based on disaggregated loan and deposit data. Since empirical work on interest spreads is used for guiding policy recommendations, these findings have important implications for the interpretation of interest spreads regressions. Our analysis calls for some caution in the interpretation of estimated empirical determinants of bank spreads that are constructed from income statements and balance sheet data. At the same time, our analysis shows how information from the two types of interest rate spreads can be combined to create a more complete portrait of bank behavior than either type alone is capable of creating. The results for Chile suggest the potential importance of gathering such disaggregated data in other countries.

The Growth and Welfare Consequences of Differential Tariffs With Endogenously-Supplied Capital and Labor

This paper analyzes the impact of differential tariffs on consumption and investment in a specific factors model of a small open economy in which capital is accumulated over time. Particular attention is devoted to the welfare aspects. highlighting the cost of the intertemporal distortions produced by protective trade policies. Several specific welfare propositions are obtained. First, tariff protection is shown to create short-run benefits but long-run costs in welfare. Secondly, the second-best policy for the two tariffs is characterized. Finally, several propositions summarizing the implications of our analysis for tariff reform are derived.

Thermal and dynamic behaviour of supraglacial clasts and the origin of sorting in supraglacial debris covers

The transition zone from a discontinuous to a continuous debris cover is an extensive part of many glacier ablation zones. Although responsible for the highest specific melt rates of debris-covered glaciers, transition zones have received little research and are poorly understood. Here we consider the interactions between emergent clasts and melting ice surfaces at Glacier d'Estelette and Miage Glacier (Italian Alps). Debris-ice interactions are complex because dispersed heterogenous debris both enhances and retards melt rate in the same locality, depending on the distribution of clast sizes. Observations reveal that thermal and dynamic clast interactions with the glacier surface increase the transport rate of coarse clasts, and initiate vertical sorting at the point when a continuous debris layer forms. This happens because, in summer, clasts exceeding the critical thickness for melt slide over the glacier surface. In contrast finer thermally-embedded material is transported at ice surface velocity and become covered by coarser material from upslope. Once established, debris-cover texture allows sorting to develop as the cover thickens downglacier. A two-layer temperature profile results, in which a coarse, drier clast layer of low thermal conductivity overlies a finer-grained, moist layer of higher thermal conductivity. Transition-zone processes establish inverse grading at the initiation of a debris cover, allowing subsequent sorting to operate as the cover thickens downstream. The processes by which this occurs are unknown, but analogy with periglacial active layers suggests convection within a frost-susceptible lower fine layer and eluviation of fines supplied by aeolian deposition and in-situ clast distintegratio

Sobre los Determinantes de los Spreads Marginal y Promedio de las Tasas de Interés Bancarias: Chile 1994-2001

The study of bank interest rate spreads is central to our understanding of the process of financial intermediation. Data limitations generally restrict empirical analyses to interest rate spreads that are constructed from bank income statements and balance sheets. In this paper we make use of a dataset that allows us to directly compute interest rate spreads based on individual bank loan and deposit rates reported on a monthly basis to the relevant organization. The information is disaggregated by unit of account (peso,the inflation-indexed UF, and dollar) over the period 1994-2001. We find that the estimated impacts of industry concentration, business cycle variables, and monetary policy variables differ markedly between interest rate spreads based on balance sheet data and interest rate spreads based on disaggregated loan and deposit data. Since empirical work on interest spreads is used for guiding policy recommendations, these findings have important implications for the interpretation of interest spreads regressions. Our analysis calls for some aution in interpreting estimated empirical determinants of bank spreads that are constructed from income statements and balance sheet data. At the same time, it shows how information from the two types of interest rate spreads can be combined to create a more complete portrait of bank behavior than either type is capable of drawing by itself. The results for Chile suggest the potential importance of gathering such disaggregated data in other countries.

Structural insights into omega-class glutathione transferases: a snapshot of enzyme reduction and identification of a non-catalytic ligandin site

Glutathione transferases (GSTs) are dimeric enzymes containing one active-site per monomer. The omega-class GSTs (hGSTO1-1 and hGSTO2-2 in humans) are homodimeric and carry out a range of reactions including the glutathione-dependant reduction of a range of compounds and the reduction of S-(phenacyl)glutathiones to acetophenones. Both types of reaction result in the formation of a mixed-disulfide of the enzyme with glutathione through the catalytic cysteine (C32). Recycling of the enzyme utilizes a second glutathione molecule and results in oxidized glutathione (GSSG) release. The crystal structure of an active-site mutant (C32A) of the hGSTO1-1 isozyme in complex with GSSG provides a snapshot of the enzyme in the process of regeneration. GSSG occupies both the G (GSH-binding) and H (hydrophobic-binding) sites and causes re-arrangement of some H-site residues. In the same structure we demonstrate the existence of a novel "ligandin" binding site deep within in the dimer interface of this enzyme, containing S-(4-nitrophenacyl)glutathione, an isozyme-specific substrate for hGSTO1-1. The ligandin site, conserved in Omega class GSTs from a range of species, is hydrophobic in nature and may represent the binding location for tocopherol esters that are uncompetitive hGSTO1-1 inhibitors.This work was supported by National Health and Medical Research Council Project Grant 366731. AJO is supported by an Australian Research Council Future Fellowship FT0990287