The role of capital, liquidity and credit growth in financial crises in Latin America and East Asia

We construct a dataset of bank capital adequacy and liquidity to test their relationships to crises in Asia and Latin America. Event studies, logit and ROC estimations suggest these variables are valuable leading indicators of crises. They can be used to improve Early Warning System design although there are trade-offs between model simplicity, which implies less monitoring costs and complexity which may improve accuracy. There are significant differences between the regions so pooling assumptions are unsound. AUCs show that capital and/or liquidity can be used in a parsimonious model without substantial loss in crisis predictive accuracy. We find no direct role for credit growth in either region. Our results have implications for Asian and Latin American financial regulators concerned with the impacts of Basel III on their banking systems.This work is funded under ESRC Grant No. PTA – 053 – 27 – 0002, entitled “An Investigation into the Causes of Banking Crises and Early Warning System Design”

Financial liberalization and capital adequacy in models of financial crises

We characterize the effects of financial liberalization indices on OECD banking crises, controlling for the standard macro prudential variables that prevail in the current literature. We use the Fraser Institute’s Economic Freedom of the World database. This yields a variable that captures credit market regulations which broadly measures the restrictions under which banks operate. We then test for the direct impacts of some of its components, deposit interest rate regulations and private sector credit controls, on crisis probabilities and their indirect effects via capital adequacy. Over the period 1980 – 2012, we find that less regulated markets are associated with a lower crisis frequency, and it appears that the channel comes through strengthening the defence that capital provides. Deposit interest rate liberalisation adds to the strength of capital in protecting against crises. However, private sector credit liberalisation, appears to increase the probability of having a crisis, albeit not significantly. If policy makers are concerned about the costs of low risk events, they may wish to control private sector credit even if it has a probability of affecting significantly crises of between 10 and 20 per cent

Off-balance sheet exposures and banking crises in OECD countries

Against the background of the acknowledged importance of off-balance-sheet exposures in the sub prime crisis, we seek to investigate whether this was a new phenomenon or common to earlier crises. Using a logit approach to predicting banking crises in 14 OECD countries we find a significant impact of a proxy for the ratio of banks‟ off-balance-sheet activity to total (off and on balance sheet) activity, as well as capital and liquidity ratios, the current account balance and GDP growth. These results are robust to the exclusion of the most crisis prone countries in our model. For early warning purposes we show that real house price growth is a good proxy for off balance sheet activity prior to the sub-prime episode. Variables capturing off-balance sheet activity have been neglected in most early warning models to date. We consider it essential that regulators take into account the results for crisis prediction in regulating banks and their off-balance sheet exposures, and thus controlling their contribution to systemic risk

Bank regulation, property prices and early warning systems for banking crises in OECD countries

Early warning systems (EWS) for banking crises generally omit bank capital, bank liquidity and property prices. Most work on EWS has been for global samples dominated by emerging market crises where time series data on bank capital adequacy and property prices are typically absent. We estimate logit crisis models for OECD countries, finding strong effects from capital adequacy and liquidity ratios as well as property prices, and can exclude traditional variables. Higher capital adequacy and liquidity ratios have a marked effect on the crisis probabilities, implying long run benefits to offset some of the costs that such regulations may impose

How idiosyncratic are banking crises in OECD countries?

Low levels of bank capital and liquidity in combination with ongoing crises in other countries are shown to increase the probability of banking crises in OECD countries. Hence global coordination of regulatory reform is vital for reducing crisis risks.Funding was received from the ESRC for this work

Rival bishops, rival cathedrals : the election of Cormac, archdeacon of Sodor, as bishop in 1331

Peer reviewedPublisher PD

Conservation of long-range synteny and microsynteny between the genomes of two distantly related nematodes

BACKGROUND: Comparisons between the genomes of the closely related nematodes Caenorhabditis elegans and Caenorhabditis briggsae reveal high rates of rearrangement, with a bias towards within-chromosome events. To assess whether this pattern is true of nematodes in general, we have used genome sequence to compare two nematode species that last shared a common ancestor approximately 300 million years ago: the model C. elegans and the filarial parasite Brugia malayi. RESULTS: An 83 kb region flanking the gene for Bm-mif-1 (macrophage migration inhibitory factor, a B. malayi homolog of a human cytokine) was sequenced. When compared to the complete genome of C. elegans, evidence for conservation of long-range synteny and microsynteny was found. Potential C. elegans orthologs for II of the 12 protein-coding genes predicted in the B. malayi sequence were identified. Ten of these orthologs were located on chromosome I, with eight clustered in a 2.3 Mb region. While several, relatively local, intrachromosomal rearrangements have occurred, the order, composition, and configuration of two gene clusters, each containing three genes, was conserved. Comparison of B. malayi BAC-end genome survey sequence to C. elegans also revealed a bias towards intrachromosome rearrangements. CONCLUSIONS: We suggest that intrachromosomal rearrangement is a major force driving chromosomal organization in nematodes, but is constrained by the interdigitation of functional elements of neighboring genes

Towards an understanding of credit cycles: do all credit booms cause crises?

Macroprudential policy is now based around a countercyclical buffer, relating capital requirements for banks to the degree of excess credit in the economy. We consider the construction of the credit to GDP gap looking at different ways of extracting the cyclical indicator for excess credit. We compare different smoothing mechanisms for the credit gap, and demonstrate that some countries require an AR(2) smoother whilst other do not. We embed these different estimates of the credit gap in Logit models of financial crises, and show that the AR(2) cycle is a much better contributor to their explanation than is the HP filter suggested by the BIS and currently in use in policy making.Weshow that our results are robust to changes in assumptions, and we make criticisms of current policy settings

E-MSD: an integrated data resource for bioinformatics

The Macromolecular Structure Database (MSD) group (http://www.ebi.ac.uk/msd/) continues to enhance the quality and consistency of macromolecular structure data in the worldwide Protein Data Bank (wwPDB) and to work towards the integration of various bioinformatics data resources. One of the major obstacles to the improved integration of structural databases such as MSD and sequence databases like UniProt is the absence of up to date and well-maintained mapping between corresponding entries. We have worked closely with the UniProt group at the EBI to clean up the taxonomy and sequence cross-reference information in the MSD and UniProt databases. This information is vital for the reliable integration of the sequence family databases such as Pfam and Interpro with the structure-oriented databases of SCOP and CATH. This information has been made available to the eFamily group (http://www.efamily.org.uk/) and now forms the basis of the regular interchange of information between the member databases (MSD, UniProt, Pfam, Interpro, SCOP and CATH). This exchange of annotation information has enriched the structural information in the MSD database with annotation from wider sequence-oriented resources. This work was carried out under the ‘Structure Integration with Function, Taxonomy and Sequences (SIFTS)’ initiative (http://www.ebi.ac.uk/msd-srv/docs/sifts) in the MSD group