Banking system stability: A cross-atlantic perspective

Paper prepared for the NBER project on “Risks of Financial Institutions”. We benefited from suggestions and criticism by many participants in the NBER project on “Risks of financial institutions”, in particular by the organizers Mark Carey (also involving Dean Amel and Allen Berger) and Rene Stulz, by our discussant Tony Saunders and by Patrick de Fontnouvelle, Gary Gorton, Andy Lo, Jim O’Brien and Eric Rosengren. Furthermore, we are grateful for comments we received at the 2004 European Finance Association Meetings in Maastricht, in particular by our discussant Marco da Rin and by Christian Upper, at the 2004 Ottobeuren seminar in economics, notably the thoughts of our discussant Ernst Baltensberger, of Friedrich Heinemann and of Gerhard Illing, as well as at seminars of the Max Planck Institute for Research on Collective Goods, the Federal Reserve Bank of St. Louis, the ECB and the University of Frankfurt. Gabe de Bondt and David Marques Ibanez supported us enormously in finding yield spread data, Lieven Baele and Richard Stehle kindly made us aware of pitfalls in Datastream equity data. Very helpful research assistance by Sandrine Corvoisier, Peter Galos and Marco Lo Duca as well as editorial support by Sabine Wiedemann are gratefully acknowledged. Any views expressed only reflect those of the authors and should not be interpreted as the ones of the ECB or the Eurosystem. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. This paper derives indicators of the severity and structure of banking system risk from asymptotic interdependencies between banks’ equity prices. We use new tools available from multivariate extreme value theory to estimate individual banks’ exposure to each other (“contagion risk”) and to systematic risk. Moreover, by applying structural break tests to those measures we study whether capital markets indicate changes in the importance of systemic risk over time. Using data for the United States and the euro area, we can also compare banking system stability between the two largest economies in the world. Finally, for Europe we assess the relative importance of cross-border bank spillovers as compared to domestic bank spillovers. The results suggest, inter alia, that systemic risk in the US is higher than in the euro area, mainly as cross-border risks are still relatively mild in Europe. On both sides of the Atlantic systemic risk has increased during the 1990s

Fat tail distributions and local thin tail alternatives

The behaviour of the Hill estimator for the tail index of fat tailed distributions in the presence of local alternatives which have a thin tail is investigated. The converse problem is also briefly addressed. A local thin tail alternative can severely bias the Hill statistic. The relevance of this issue for the class of stable distributions is discussed. We conduct a small simulation study to support the analysis. In the conclusion it is argued that for moderate out of sample quantile analysis the problem of local alternatives may be less pressing

Big news in small samples

Univariate time series regressions of the forex return on the forward premium generate mostly negative slope coefficients. Simple and refined panel estimation techniques yield slope estimates that are much closer to unity. We explain the two apparently opposing results by allowing for both additive and multiplicative news. No arbitrage arguments imply that the multiplicative news component must be identical across all exchange rates at a given point in time. Cross section estimates reveal that the movements in the multiplicative news component are so large that a negative slope coefficient for the post Bretton Woods time series regressions is not inprobable

Fundamentals and joint currency crises

It is by now well known that Þnancial returns exhibit heavy tails and are thus nonnormally distributed. This implies that extreme market conditions tend to happen more frequently than expected on the basis of the normal distribution, which is used so often in standard asset pricing approaches. From the point of view of international Þnan- cial stability and portfolio diversiÞcation, the strength of asset linkages during crisis periods matters even more, as the linkages determine the stability of the system as a whole. Several papers talk about increased correlation between Þnancial assets or markets during crisis periods. As has been argued before, the use of correlation analysis is not without problems though. Since the correlation concept is just an intermediary step in calculating probabilities, we prefer to deÞne market linkages in terms of conditional probabilities and the expected number of market crashes

Bank lending strategy, credit scoring and financial crises

Adverse selection inherent in the bank-borrower relationship typically intensifies during crises. This problem is expecially severe in emerging markets, characterized by weak institutions and banks with poorly developed monitoring and screening abilities. Exploiting a unique sample of Vietnamese loans, we show that by updating their credit scoring models banks can significantly improve their screening abilities. Our results suggest that a crisis fundamentally changes default patterns and that a model based on post-crisis data outperforms models based on pre-crisis data. We conclude that updating credit scoring models is a viable alternative to credit rationing for banks and, in combination with relationship lending, can lead to improved loan pricing, efficiency and profitability

Aflatoxin Levels in Locally Grown Maize from Makueni District, Kenya

Objectives: Investigations were carried out to determine aflatoxin levels in household maize in Makueni District and to correlate aflatoxin levels to maize drying and storage practices. Also, aflatoxin exposure in villages that reported aflatoxicosis cases in 2005 was compared with that in villages that did not report cases to assess whether aflatoxin exposure levels could be used to identify high-risk villages for targeted prevention interventions. Design: A cross-sectional study. Setting: Three divisions of Makueni district, Kibwezi, Makindu and Mtito Andei in Eastern Province, Kenya. Subjects: Ninety six households were surveyed, and 104 maize samples were analysed for total aflatoxin levels from June to July 2005. The households were selected from high and low aflatoxicosis risk areas. Results: Out of the 104 maize samples collected from 96 households, 37 (35.5%) had aflatoxin levels above the World Health Organisation (WHO) recommended maximum limit of 20 ppb. All of these samples were homegrown or purchased. Twenty one samples (20.1%) had levels above 100 ppb. Eleven (10.6%) had extremely high levels above 1,000 ppb. No relief supply maize had aflatoxin levels above the WHO maximum limit. Conclusion: High levels of aflatoxin in homegrown and purchased maize suggested that aflatoxin exposure was widespread. East African Medical Journal Vol. 85 (7) 2008: pp. 311-31

A comparison of the prevalence of health problems among adults with and without intellectual disability:A total administrative population study

Introduction There is considerable international research indicating health disparities between people with and without intellectual disabilities. It is important that comparative studies use representative population samples. This study compares a total administrative population of adults with intellectual disability to a random stratified general population sample. Methods An administrative population of 217 adults with intellectual disability and a random stratified sample of 2,350 adults without intellectual disability participated. A questionnaire using the International Classification of Diseases (ICD‐10) Chapter Headings was administered to all participants to enable a like‐for‐like comparison. Findings Unadjusted comparisons identified that adults with intellectual disability have a greater prevalence of health problems. These problems start early in adulthood and continue throughout life. However, they were less likely to experience cancers and musculoskeletal diseases. Conclusions These findings are consistent with the hypothesis that adults with intellectual disabilities have greater prevalence rates of health problems than the general population

Assessment of Objectively Measured Physical Activity Levels in Individuals with Intellectual Disabilities with and without Down's Syndrome

Objective: To investigate, using accelerometers, the levels of physical activity being undertaken by individuals with intellectual disabilities with and without Down’s syndrome. Methods: One hundred and fifty two individuals with intellectual disabilities aged 12–70 years from East and South-East England. Physical activity levels in counts per minute (counts/min), steps per day (steps/day), and minutes of sedentary, light, moderate, vigorous, and moderate to vigorous physical activity (MVPA) measured with a uni-axial accelerometer (Actigraph GT1M) for seven days. Results: No individuals with intellectual disabilities met current physical activity recommendations. Males were more active than females. There was a trend for physical activity to decline and sedentary behaviour to increase with age, and for those with more severe levels of intellectual disability to be more sedentary and less physically active, however any relationship was not significant when adjusted for confounding variables. Participants with Down’s syndrome engaged in significantly less physical activity than those with intellectual disabilities without Down’s syndrome and levels of activity declined significantly with age. Conclusions: Individuals with intellectual disabilities, especially those with Down’s syndrome may be at risk of developing diseases associated with physical inactivity. There is a need for well-designed, accessible, preventive health promotio

Prevalence of HPV Infection in Racial-Ethnic Subgroups of Head and Neck Cancer Patients

The landscape of HPV infection in racial/ethnic subgroups of head and neck cancer (HNC) patients has not been evaluated carefully. In this study, a meta-analysis examined the prevalence of HPV in HNC patients of African ancestry. Additionally, a pooled analysis of subject-level data was also performed to investigate HPV prevalence and patterns of p16 (CDNK2A) expression amongst different racial groups. Eighteen publications (N = 798 Black HNC patients) were examined in the meta-analysis, and the pooled analysis included 29 datasets comprised of 3,129 HNC patients of diverse racial/ethnic background. The meta-analysis revealed that the prevalence of HPV16 was higher among Blacks with oropharyngeal cancer than Blacks with non-oropharyngeal cancer. However, there was great heterogeneity observed among studies (Q test P<0.0001). In the pooled analysis, after adjusting for each study, year of diagnosis, age, gender and smoking status, the prevalence of HPV16/18 in oropharyngeal cancer patients was highest in Whites (61.1%), followed by 58.0% in Blacks and 25.2% in Asians (P<0.0001). There was no statistically significant difference in HPV16/18 prevalence in non-oropharyngeal cancer by race (P=0.682). With regard to the pattern of HPV16/18 status and p16 expression, White patients had the highest proportion of HPV16/18+/p16+ oropharyngeal cancer (52.3%), while Asians and Blacks had significantly lower proportions (23.0% and 22.6%, respectively) [P <0.0001]. Our findings suggest that the pattern of HPV16/18 status and p16 expression in oropharyngeal cancer appears to differ by race and this may contribute to survival disparities