Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Expensive

We examine the pervasive view that “equity is expensive,” which leads to claims that high capital requirements are costly and would affect credit markets adversely. We find that arguments made to support this view are either fallacious, irrelevant, or very weak. For example, the return on equity contains a risk premium that must go down if banks have more equity. It is thus incorrect to assume that the required return on equity remains fixed as capital requirements increase. It is also incorrect to translate higher taxes paid by banks to a social cost. Policies that subsidize debt and indirectly penalize equity through taxes and implicit guarantees are distortive. Any desirable public subsidies to banks’ activities should be given directly and not in ways that encourage leverage. Finally, suggestions that high leverage serves a necessary disciplining role are based on inadequate theory lacking empirical support. We conclude that bank equity is not socially expensive, and that high leverage is not necessary for banks to perform all their socially valuable functions, including lending, taking deposits and issuing money-like securities. To the contrary, better capitalized banks suffer fewer distortions in lending decisions and would perform better. The fact that banks choose high leverage does not imply that this is socially optimal, and, viewed from an ex ante perspective, high leverage may not even be privately optimal for banks. Setting equity requirements significantly higher than the levels currently proposed would entail large social benefits and minimal, if any, social costs. Approaches based on equity dominate alternatives, including contingent capital. To achieve better capitalization quickly and efficiently and prevent disruption to lending, regulators must actively control equity payouts and issuance. If remaining challenges are addressed, capital regulation can be a powerful tool for enhancing the role of banks in the economy.capital regulation, financial institutions, capital structure, too big to fail, systemic risk, bank equity, contingent capital, Basel.

Robert Fink, Melinda Latour, Zachary Wallmark (eds.), The Relentless Pursuit of Tone. Timbre in Popular Music

Many myths, ideologies and aspirations go along with the concept of ‘tone’– or ‘sound’ as favored outside the Anglophonic world. Time and again, the ‘tone’ of a certain genre of popular music, a certain musician or a specific instrument is claimed to be the key for a deep experience and understanding of the music. Moreover, ‘tone’, ‘sound’ or ‘timbre’ are labels for a special quality that is the alleged essence of the music – and which could be achieved by buying certain musical instruments o..

Commentary on Microtonal Analysis of "Blue Notes" and the Blues Scale by Court B. Cutting

This commentary relates to the target paper by Cutting on the microtonal analysis of pitches in the vocal lines of fifteen blues recordings. After relating Cutting's study to Jeff Todd Titon's Early Downhome Blues, some of its merits and shortcomings are discussed. Finally, it is suggested to surpass the study of an abstract blues scale with research on blues modes, including characteristic ornamentations such as glides as well as typically employed patterns that specify certain blues songs or song types

Ultra-high vacuum compatible induction-heated rod casting furnace

We report the design of a radio-frequency induction-heated rod casting furnace that permits the preparation of polycrystalline ingots of intermetallic compounds under ultra-high vacuum compatible conditions. The central part of the system is a bespoke water-cooled Hukin crucible supporting a casting mold. Depending on the choice of mold, typical rods have a diameter between 6 mm and 10 mm and a length up to 90 mm, suitable for single-crystal growth by means of float-zoning. The setup is all-metal sealed and may be baked out. We find that the resulting ultra-high vacuum represents an important precondition for processing compounds with high vapor pressures under a high-purity argon atmosphere up to 3 bar. Using the rod casting furnace, we succeeded to prepare large high-quality single crystals of two half-Heusler compounds, namely the itinerant antiferromagnet CuMnSb and the half-metallic ferromagnet NiMnSb.Comment: 5 pages, 4 figure

Fallacies, irrelevant facts, and myths in the discussion of capital regulation: Why bank equity is not expensive

We examine the pervasive view that equity is expensive which leads to claims that high capital requirements are costly and would affect credit markets adversely. We find that arguments made to support this view are either fallacious, irrelevant, or very weak. For example, the return on equity contains a risk premium that must go down if banks have more equity. It is thus incorrect to assume that the required return on equity remains fixed as capital requirements increase. It is also incorrect to translate higher taxes paid by banks to a social cost. Policies that subsidize debt and indirectly penalize equity through taxes and implicit guarantees are distortive. Any desirable public subsidies to banks' activities should be given directly and not in ways that encourage leverage. Finally, suggestions that high leverage serves a necessary disciplining role are based on inadequate theory lacking empirical support. We conclude that bank equity is not socially expensive, and that high leverage is not necessary for banks to perform all their socially valuable functions, including lending, taking deposits and issuing money-like securities. To the contrary, better capitalized banks suffer fewer distortions in lending decisions and would perform better. The fact that banks choose high leverage does not imply that this is socially optimal, and, viewed from an ex ante perspective, high leverage may not even be privately optimal for banks. Setting equity requirements significantly higher than the levels currently proposed would entail large social benefits and minimal, if any, social costs. Approaches based on equity dominate alternatives, including contingent capital. To achieve better capitalization quickly and efficiently and prevent disruption to lending, regulators must actively control equity payouts and issuance. If remaining challenges are addressed, capital regulation can be a powerful tool for enhancing the role of banks in the economy

Fallacies, irrelevant facts, and myths in the discussion of capital regulation: Why bank equity is not socially expensive

We examine the pervasive view that 'equity is expensive' which leads to claims that high capital requirements are costly for society and would affect credit markets adversely. We find that arguments made to support this view are fallacious, irrelevant to the policy debate by confusing private and social costs, or very weak. For example, the return on equity contains a risk premium that must go down if banks have more equity. It is thus incorrect to assume that the required return on equity remains fixed as capital requirements increase. It is also incorrect to translate higher taxes paid by banks to a social cost. Policies that subsidize debt and indirectly penalize equity through taxes and implicit guarantees are distortive. And while debt´s informational insensitivity may provide valuable liquidity, increased capital (and reduced leverage) can enhance this benefit. Finally, suggestions that high leverage serves a necessary disciplining role are based on inadequate theory lacking empirical support. We conclude that bank equity is not socially expensive, and that high leverage at the levels allowed, for example, by the Basel III agreement is not necessary for banks to perform all their socially valuable functions and likely makes banking inefficient. Better capitalized banks suffer fewer distortions in lending decisions and would perform better. The fact that banks choose high leverage does not imply that this is socially optimal. Except for government subsidies and viewed from an ex ante perspective, high leverage may not even be privately optimal for banks. Setting equity requirements significantly higher than the levels currently proposed would entail large social benefits and minimal, if any, social costs. Approaches based on equity dominate alternatives, including contingent capital. To achieve better capitalization quickly and efficiently and prevent disruption to lending, regulators must actively control equity payouts and issuance. If remaining challenges are addressed, capital regulation can be a powerful tool for enhancing the role of banks in the economy

Low-temperature properties of single-crystal CrB2_{2}

We report the low-temperature properties of $^{11}$B-enriched single-crystal CrB$_{2}$ as prepared from high-purity Cr and B powder by a solid-state reaction and optical float zoning. The electrical resistivity, $\rho_{\rm xx}$, Hall effect, $\rho_{\rm xy}$, and specific heat, $C$, are characteristic of an exchange-enhanced Fermi liquid ground state, which develops a slightly anisotropic spin gap $\Delta \approx 220\,{\rm K}$ below $T_{\rm N}=88\,{\rm K}$. This observation is corroborated by the absence of a Curie dependence in the magnetization for $T\to0$ reported in the literature. Comparison of $C$ with $d\rho_{\rm xx}/dT$, where we infer lattice contributions from measurements of VB$_2$, reveals strong antiferromagnetic spin fluctuations with a characteristic spin fluctuation temperature $T_{\rm sf}\approx 257\,{\rm K}$ in the paramagnetic state, followed by a pronounced second-order mean-field transition at $T_{\rm N}$, and unusual excitations around $\approx T_{\rm N}/2$. The pronounced anisotropy of $\rho_{\rm xx}$ above $T_{\rm N}$ is characteristic of an easy-plane anisotropy of the spin fluctuations consistent with the magnetization. The ratio of the Curie-Weiss to the N$\acute{\rm{e}}$el temperatures, $f=-\Theta_{\rm CW}/T_{\rm N}\approx 8.5$, inferred from the magnetization, implies strong geometric frustration. All physical properties are remarkably invariant under applied magnetic fields up to $14\,\,{\rm T}$, the highest field studied. In contrast to earlier suggestions of local-moment magnetism our study identifies CrB$_{2}$ as a weak itinerant antiferromagnet par excellence with strong geometric frustration.Comment: 15 pages, 9 figure