The Role of Capital in Financial Institutions

This paper examines the role of capital in financial institutions. As the introductory article to a conference on the role of capital management in banking and insurance, it describes the authors' views of why capital is important, how market-generated capital requirements' differ from regulatory requirements and the form that regulatory requirements should take. It also examines the historical trends in bank capital, problems in measuring capital and some possible unintended consequences of capital requirements. According to the authors, the point of departure for all modern research on capital structure is the Modigliani-Miller (M&M, 1958) proposition that in a frictionless world of full information and complete markets, a firm s capital structure cannot affect its value. The authors suggest however, that financial institutions lack any plausible rationale in the frictionless world of M&M. Most of the past research on financial institutions has begun with a set of assumed imperfections, such as taxes, costs of financial distress, transactions costs, asymmetric information and regulation. Miller argues (1995) that these imperfections may not be important enough to overturn the M&M Proposition. Most of the other papers presented at this conference on capital take the view that the deviations from M&M s frictionless world are important, so that financial institutions may be able to enhance their market values by taking on an optimal amount of leverage. The authors highlight these positions in this article. The authors next examine why markets require' financial institutions to hold capital. They define this capital requirement' as the capital ratio that maximizes the value of the bank in the absence of regulatory capital requirements and all the regulatory mechanisms that are used to enforce them, but in the presence of the rest of the regulatory structure that protects the safety and soundness of banks. While the requirement differs for each bank, it is the ratio toward which each bank would tend to move in the long run in the absence of regulatory capital requirements. The authors then introduce imperfections into the frictionless world of M&M taxes and the costs of financial distress, transactions costs and asymmetric information problems and the regulatory safety net. The authors analysis suggests that departures from the frictionless M&M world may help explain market capital requirements for banks. Tax considerations tend to reduce market capital requirements , the expected costs of financial distress tend to raise these requirements , and transactions costs and asymmetric information problems may either increase or reduce the capital held in equilibrium. The federal safety net shields bank creditors from the full consequences of bank risk taking and thus tends to reduce market capital requirements . The paper then summarizes the historical evolution of bank capital ratios in the United States and the reasons regulators require financial institutions to hold capital. They suggest that regulatory capital requirements are blunt standards that respond only minimally to perceived differences in risk rather than the continuous prices and quantity limits set by uninsured creditors in response to changing perceptions of the risk of individual banks. The authors suggest an ideal system for setting capital standards but agree that it would be prohibitively expensive, if not impossible. Regulators lack precise estimates of social costs and benefits to tailor a capital requirement for each bank, and they cannot easily revise the requirements continuously as conditions change. The authors continue with suggestions for measuring regulatory capital more effectively. They suggest that a simple risk-based capital ratio is a relatively blunt tool for controlling bank risk-taking. The capital in the numerator may not always control bank moral hazard incentive; it is difficult to measure, and its measured value may be subject to manipulation by gains trading . The risk exposure in the denominator is also difficult to measure, corresponds only weakly to actual risk and may be subject to significant manipulation. These imprecisions worsen the social tradeoff between the externalities from bank failures and the quantity of bank intermediation. To keep bank risk to a tolerable level, capital standards must be higher on average than they otherwise would be if the capital ratios could be set more precisely, raising bank costs and reducing the amount of intermediation in the economy in the long run. Since actual capital standards are, at best, an approximation to the ideal, the authors argue that it should not be surprising that they may have had some unintended effects. They examine two unintended effects on bank portfolio risk or credit allocative inefficiencies. These two are the explosive growth of securitization and the so-called credit crunch by U.S. banks in the early 1990s. The authors show that capital requirements may give incentives for some banks to increase their risks of failure. Inaccuracies in setting capital requirements distort relative prices and may create allocative inefficiencies that divert financial resources from their most productive uses. During the 1980s, capital requirements may have created artificial incentives for banks to take off-balance sheet risk, and changes in capital requirements in the 1990s may have contributed to a credit crunch.

Sympatric prey responses to lethal top-predator control: predator manipulation experiments

Introduction: Many prey species around the world are suffering declines due to a variety of interacting causes such as land use change, climate change, invasive species and novel disease. Recent studies on the ecological roles of top-predators have suggested that lethal top-predator control by humans (typically undertaken to protect livestock or managed game from predation) is an indirect additional cause of prey declines through trophic cascade effects. Such studies have prompted calls to prohibit lethal top-predator control with the expectation that doing so will result in widespread benefits for biodiversity at all trophic levels. However, applied experiments investigating in situ responses of prey populations to contemporary top-predator management practices are few and none have previously been conducted on the eclectic suite of native and exotic mammalian, reptilian, avian and amphibian predator and prey taxa we simultaneously assess. We conducted a series of landscape-scale, multi-year, manipulative experiments at nine sites spanning five ecosystem types across the Australian continental rangelands to investigate the responses of sympatric prey populations to contemporary poison-baiting programs intended to control top-predators (dingoes) for livestock protection. Results: Prey populations were almost always in similar or greater abundances in baited areas. Short-term prey responses to baiting were seldom apparent. Longer-term prey population trends fluctuated independently of baiting for every prey species at all sites, and divergence or convergence of prey population trends occurred rarely. Top-predator population trends fluctuated independently of baiting in all cases, and never did diverge or converge. Mesopredator population trends likewise fluctuated independently of baiting in almost all cases, but did diverge or converge in a few instances. Conclusions: These results demonstrate that Australian populations of prey fauna at lower trophic levels are typically unaffected by top-predator control because top-predator populations are not substantially affected by contemporary control practices, thus averting a trophic cascade. We conclude that alteration of current top-predator management practices is probably unnecessary for enhancing fauna recovery in the Australian rangelands. More generally, our results suggest that theoretical and observational studies advancing the idea that lethal control of top-predators induces trophic cascades may not be as universal as previously supposed

Quorum sensing protects bacterial co-operation from exploitation by cheats

Quorum sensing (QS) is a cell–cell communication system found in many bacterial species, commonly controlling secreted co-operative traits, including extracellular digestive enzymes. We show that the canonical QS regulatory architecture allows bacteria to sense the genotypic composition of high-density populations, and limit co-operative investments to social environments enriched for co-operators. Using high-density populations of the opportunistic pathogen Pseudomonas aeruginosa we map per-capita signal and co-operative enzyme investment in the wild type as a function of the frequency of non-responder cheats. We demonstrate mathematically and experimentally that the observed response rule of ‘co-operate when surrounded by co-operators' allows bacteria to match their investment in co-operation to the composition of the group, therefore allowing the maintenance of co-operation at lower levels of population structuring (that is, lower relatedness). Similar behavioural responses have been described in vertebrates under the banner of ‘generalised reciprocity'. Our results suggest that mechanisms of reciprocity are not confined to taxa with advanced cognition, and can be implemented at the cellular level via positive feedback circuits

Ariel - Volume 2 Number 7

Editors Richard J. Bonanno Robin A. Edwards Associate Editors Steven Ager Stephen Flynn Shep Dickman Tom Williams Lay-out Editor Eugenia Miller Contributing Editors Michael J. Blecker W. Cherry Light James J. Nocon Lynne Porter Editors Emeritus Delvyn C. Case, Jr. Paul M. Fernhof

The reliability, validity and responsiveness of the Restless Legs Syndrome Quality of Life questionnaire (RLSQoL) in a trial population

BACKGROUND: The aim of this study was to determine the reliability, validity and responsiveness of the Restless Legs Syndrome Quality of Life questionnaire (RLSQoL) in a clinical trial setting. METHODS: Two matching, placebo-controlled, multinational studies assessing the effectiveness and safety of ropinirole for treating moderate-to-severe Restless Legs Syndrome (RLS) formed the basis of this psychometric assessment. Validity and reliability were assessed using baseline data. Responsiveness was determined using longitudinal data collected at baseline and 12 weeks. RESULTS: A total of 547 subjects formed the baseline validation population; 519 were used for assessing responsiveness (n = 284/263 and 271/248 for both studies, respectively). Construct validity assessment confirmed that an overall life impact score could be calculated. All item-scale correlations were = 0.4, except items 1 (r = 0.36) and 5 (r = 0.35) in one study. Floor and ceiling effects were minimal. Cronbach's alpha values were 0.82 and 0.87, respectively, confirming internal consistency reliability. Correlations with the International Restless Legs Syndrome Study Group's severity rating scale (International Restless Legs Scale; IRLS) were moderate (r = -0.68 and -0.67, respectively; p < 0.0001). The RLSQoL was able to discriminate between levels of sleep problems (p < 0.0001) and between levels of global health status determined by a Clinical Global Impression of severity (CGI-S) (p < 0.0001). Responsiveness was demonstrated by significant differences in overall life impact change scores between CGI improvement levels after 12 weeks (p < 0.0001). CONCLUSION: The RLSQoL is a valid, reliable and responsive measure of quality of life for patients with RLS, in a clinical trial setting where group comparisons are anticipated

Directions for 21st Century Lifelong Learning Institutes: Elucidating Questions from Osher Lifelong Learning Institute Studies

The literature regarding lifelong learning is robust, while the literature on lifelong learning institutions, centers, and programs remain under-researched in comparison. This article draws insights from a specific network of lifelong learning institutes with a rich history and high rapport in the United States: the Osher Lifelong Learning Institute (OLLI) network. Sixty articles regarding OLLIs are catalogued and highlighted to elucidate twelve thematic areas and twelve questions for future research and practice. In particular, these themes are related to adult education, healthy aging, and educational gerontology. The article concludes by reflecting on trends in and needs for institutional research and practice.Les publications portant sur l’éducation permanente sont nombreuses, contrairement à celles touchant les institutions, centres et programmes d’éducation permanente qui, en comparaison, demeurent généralement mal connus. Cet article recueille des idées d’un réseau d’instituts d’éducation permanente ayant un passé riche et de bons rapports aux États-Unis : le réseau Osher Lifelong Learning Institute (OLLI). Soixante articles portant sur OLLI ont été catalogués et analysés pour faire ressortir douze thèmes et douze questions pour la recherche et la pratique à l’avenir. Ces thèmes se rattachent à l’éducation des adultes, le vieillissement sain et la gérontologie éducative. L’article se termine par des réflexions sur des tendances et des besoins relatifs à la recherche et la pratique institutionnelles.Mots clés : recherche institutionnelle, éducation permanente, ainés, éducation des adultes, universités adaptées aux personnes âgée

Manifestation of impurity induced s_{+-} -> s_{++} transition: multiband model for dynamical response functions

We investigate effects of disorder on the density of states, the single particle response function and optical conductivity in multiband superconductors with s_{+-} symmetry of the order parameter, where s_{+-} -> s_{++} transition may take place. In the vicinity of the transition the superconductive gapless regime is realized. It manifests itself in anomalies in the above mentioned properties. As a result, intrinsically phase-insensitive experimental methods like ARPES, tunneling and terahertz spectroscopy may be used for revealing of information about the underlying order parameter symmetry.Comment: 14 pages, 6 figure

Structure formation by cosmic strings with a cosmological constant

Final published version.Comment: 4 Page

Validation of the self-completed Cambridge-Hopkins questionnaire (CH-RLSq) for ascertainment of restless legs syndrome (RLS) in a population survey.

BACKGROUND AND PURPOSE: Epidemiological studies of restless legs syndrome (RLS) have been limited by lack of a well validated patient-completed diagnostic questionnaire that has a high enough specificity to provide a reasonable positive predictive value. Most of the currently used patient completed diagnostic questionnaires have neither been validated nor included items facilitating the differential diagnosis of RLS from conditions producing similar symptoms. The Cambridge-Hopkins diagnostic questionnaire for RLS (CH-RLSq) was developed with several iterations to include items covering the basic diagnostic features of RLS and to provide some basic differential diagnosis. This validation study sought to determine the sensitivity and specificity of the RLS diagnosis based on this questionnaire. PATIENTS AND METHODS: The CH-RLSq was completed by 2005 blood donors who were asked to consent to being contacted for a telephone diagnostic interview. A scoring criterion was established for ascertainment of RLS based on the clinical definition of the disorder and the exclusion of "mimic" conditions. A weighted sample (N=185) of all completed questionnaires was selected for expert clinical diagnosis of RLS using the validated Hopkins Telephone Diagnostic Interview (HDTI). The telephone interviewers were blinded to all questionnaire responses. RESULTS: A telephone diagnosis was obtained on 183 of the sample's 185 questionnaires. The questionnaire's normalized sensitivity and specificity were 87.2% and 94.4%, respectively, for RLS compared to not RLS. The positive predictive values in this sample were 85.5%. CONCLUSIONS: The Cambridge-Hopkins RLS questionnaire provides a reasonable level of sensitivity and specificity for ascertainment of RLS in population-based studies

Kearns-sayre syndrome with reduced plasma and cerebrospinal fluid folate

A young woman with Kearns-Sayre syndrome and progressive central nervous system deterioration over 15 years had decreased plasma and cerebrospinal fluid folate levels while receiving phenytoin for a seizure disorder. A muscle biopsy showed a “ragged red fiber” myopathy with reduced muscle carnitine and mitochondrial enzymes. Computed tomographic brain scans showed cerebral white matter hypodensities and bilateral calcification of the basal ganglia. The mechanism for the folate deficiency and altered ratio of plasma to cerebrospinal fluid folate is unknown, but the deficiency may be responsive to replacement therapy.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/50301/1/410130620_ftp.pd