Banking and currency crisis and systemic risk: lessons from recent events

Banking and currency crises have done severe economic damage in many countries in recent years. This article examines the causes and characteristics of these crises and the public policies intended to prevent them or mitigate their adverse consequences.Financial crises ; Bank failures ; Money ; Public policy

Variable rate residential mortgages: the early experience from California

Adjustable rate mortgages ; California

A proposal for efficiently resolving out-of-the-money swap positions at large insolvent banks

Recent evidence suggests that bank regulators appear to be able to resolve insolvent large banks efficiently without either protecting uninsured deposits through invoking "too-big-to-fail" or causing serious harm to other banks or financial markets. But resolving swap positions at insolvent banks, particularly a bank's out-of-the-money positions, has received less attention. The FDIC can now either repudiate these contracts and treat the in-the-money counterparties as at-risk general creditors or transfer the contracts to a solvent bank. Both options have major drawbacks. Terminating contracts abruptly may result in large-fire sale losses and ignite defaults in other swap contracts. Transferring the contracts both is costly to the FDIC and protects the counterparties, who would otherwise be at-risk and monitor their banks. This paper proposes a third option that keeps the benefits of both options but eliminates the undesirable costs. It permits the contracts to be transferred, thus avoiding the potential for fire-sale losses and adverse spillover, but keeps the insolvent bank's in-the-money counterparties at-risk, thus maintaining discipline on banks by large and sophisticated creditors.Deposit insurance ; Federal Deposit Insurance Corporation ; Swaps (Finance)

Depositor liquidity and loss-sharing in bank failure resolutions

Bank failures are widely feared for a number of reasons, including concern that depositors may suffer both losses in the value of their deposits (credit losses) and, possibly more importantly, restrictions in access to their deposits (liquidity losses). In the United States, this is not true for insured deposits, which are fully protected and made available to the depositor almost immediately. But both problems may occur for uninsured depositors. Thus, there is pressure on regulators to protect all depositors in bank failures. This is likely to increase both moral hazard risk-taking by banks and poor agency behavior by regulators with large ultimate costs to taxpayers. While ways of reducing the credit loss in bank failures have been widely examined, reducing liquidity losses has received far less attention. One way to mitigate this loss to uninsured depositors is to make the estimated recovery value of their deposits quickly available to them upon failure of the bank through an advance dividend or other payment by the FDIC secured by the bank's assets. Quick depositor access was suggested as a superior solution to deposit insurance in alleviating adverse effects from bank failures during the debate on deposit insurance in the early 1900s and was actually put into effect by both the Reconstruction Finance Corporation and the New York State Banking Department shortly before the establishment of the FDIC. More recently, the FDIC has experimented with the concept. This paper analyzes the pros and cons of providing quick depositor access to deposits at failed banks and reviews the history of the concept. It concludes that such a policy would greatly enhance the FDIC's ability to resolve large bank insolvencies without having to protect uninsured depositors through too-big-to-fail policies.Liquidity (Economics) ; Bank deposits ; Bank failures

Nonunion Employee Representation in North America: Diversity, Controversy, and Uncertain Future

The diverse conceptual perspectives and practical experiences with nonunion employee representation (NER) in the United States and Canada are reviewed. We first propose a 6 dimensional descriptive schema to categorize observed NER practices. Dimensions of diversity include (1) form, (2) function, (3) subjects, (4) representation characteristics, (5) extent of power, and (6) degree of permanence. We then turn to the NER controversy, which is a tangled skein consisting of many different threads of values and prescriptions. To unbundle the controversy, we develop four "faces" of NER - (1) evolutionary voice, (2) unity of interest; (3) union avoidance, and (4) complementary voice -- so that future research can more consciously test the validity of competing perspectives with hard data. Generalizing about NER is problematic because of these many dimensions of diversity, and because NER is viewed through different ideological and conceptual lenses. We conclude that NER's future trajectory is uncertain due to conflicting trends but in the short-run is most likely to remain a modest-sized phenomenon. Working Paper 06-4

Two stochastic models useful in petroleum exploration

A model of the petroleum exploration process that tests empirically the hypothesis that at an early stage in the exploration of a basin, the process behaves like sampling without replacement is proposed along with a model of the spatial distribution of petroleum reserviors that conforms to observed facts. In developing the model of discovery, the following topics are discussed: probabilitistic proportionality, likelihood function, and maximum likelihood estimation. In addition, the spatial model is described, which is defined as a stochastic process generating values of a sequence or random variables in a way that simulates the frequency distribution of areal extent, the geographic location, and shape of oil deposit

Reward and uncertainty in exploration programs

A set of variables which are crucial to the economic outcome of petroleum exploration are discussed. These are treated as random variables; the values they assume indicate the number of successes that occur in a drilling program and determine, for a particular discovery, the unit production cost and net economic return if that reservoir is developed. In specifying the joint probability law for those variables, extreme and probably unrealistic assumptions are made. In particular, the different random variables are assumed to be independently distributed. Using postulated probability functions and specified parameters, values are generated for selected random variables, such as reservoir size. From this set of values the economic magnitudes of interest, net return and unit production cost are computed. This constitutes a single trial, and the procedure is repeated many times. The resulting histograms approximate the probability density functions of the variables which describe the economic outcomes of an exploratory drilling program

Kinetics of the reaction OH (v equals 0) plus O3 yields HO2 plus O2

The rate constant (kl) of the reaction OH(v=o) + O3 yields HO2 + O2 measured over the temperature range 220 to 450 K at total pressures between 2 and 5 torr using ultraviolet fluorescent scattering for the detection of OH radicals. An Arrhenius expression was obtained, and the rate constant for the reaction HO2 + O3 yields OH + 2O2 was inferred to be less than 0.1 kl over the entire temperature interval

Engine cyclic durability by analysis and material testing

The problem of calculating turbine engine component durability is addressed. Nonlinear, finite-element structural analyses, cyclic constitutive behavior models, and an advanced creep-fatigue life prediction method called strainrange partitioning were assessed for their applicability to the solution of durability problems in hot-section components of gas turbine engines. Three different component or subcomponent geometries are examined: a stress concentration in a turbine disk; a louver lip of a half-scale combustor liner; and a squealer tip of a first-stage high-pressure turbine blade. Cyclic structural analyses were performed for all three problems. The computed strain-temperature histories at the critical locations of the combustor linear and turbine blade components were imposed on smooth specimens in uniaxial, strain-controlled, thermomechanical fatigue tests of evaluate the structural and life analysis methods