ABS, MBS and CDO compared: an empirical analysis

The capital market in which the asset-backed securities are issued and traded is composed of three main categories: ABS, MBS and CDOs. We were able to examine a total number of 3,951 loans (worth €730.25 billion) of which 1,129 (worth €208.94 billion) have been classified as ABS. MBS issues represent 2,224 issues (worth €459.32 billion) and 598 are CDO issues (worth €61.99 billion). We have investigated how common pricing factors compare for the main classes of securities. Due to the differences in the assets related to these securities, the relevant pricing factors for these securities should differ, too. Taking these three classes as a whole, we have documented that the assets attached as collateral for the securities differ between security classes, but that there are also important univariate differences to consider. We found that most of the common pricing characteristics between ABS, MBS and CDO differ significantly. Furthermore, applying the same pricing estimation model to each security class revealed that most of the common pricing characteristics associated with these classes have a different impact on the primary market spread exhibited by the value of the coefficients. The regression analyses we performed demonstrated econometrically that ABS, MBS, and CDOs are in fact different financial instruments. Top 10 Downloaded Papers for Theory: Pricing and Top 10 Downloaded Papers for Journal of Monetary Economics

The optimal rating philosophy for the rating of SMEs

The objective of this research is to determine the optimal rating philosophy for the rating of SMEs, and to describe the consequences of the chosen philosophy on several related aspects. As to our knowledge, this is the first paper that studies the considerations of financial institutions on what rating philosophy to adopt for specific portfolios. The importance for banks to have a solid risk framework to predict credit risk of their counterparties is well reflected by the quality and the quantity of research on this subject. Moreover, a good risk framework is vital to become compliant with the new Basel II framework. Problem is that financial institutions nearly always neglect the first step in the rating model development process: the determination of the rating philosophy. It is very important for financial institutions to decide whether they want their internal rating systems to grade borrowers according to their current condition (point-in-time), or their expected condition over a cycle and in stress (through-the-cycle), because the rating philosophy influences many aspects such as: credit approval, pricing, credit and portfolio monitoring, the regulatory and internal capital requirements and the competitive position of a bank. This makes the question which rating philosophy to use very important. Moreover, many different modelling techniques exist to determine credit risk, but few attempts have been devoted to credit risk assessment of small commercial loans, although SME exposures are relatively important for European banks. SMEs have specific characteristics that influence the rating philosophy and therefore the development and use of credit risk models. These SME characteristics are taken into account in the analysis to determine the optimal rating philosophy. Keywords: rating philosophy, small business, Basel II, credit rating, banks JEL classification codes: D82, E32, G20, G28, G3

Bank capital: a myth resolved

In order to promote financial stability, regulatory authorities pay a lot of attention in setting minimum capital levels. In addition to these requirements, financial institutions calculate their own economic capital reflecting the unexpected losses and true risk according to the specific characteristics of their portfolio. The current Basel I framework pays little or no attention to the creditworthiness of a borrower in deciding on the regulatory capital requirements. As a result, a lot of banks remove low-risk assets from their balance sheets and only retain relatively high risk assets on balance. The recently introduced Basel II framework should result in a further convergence between regulatory and economic capital. However, recent papers (Elizalde et al., 2006, Jackson et al., 2002 and Jacobson et al. 2006) argue that also under Basel II, regulatory and economic capital will have different determinants. This paper first gives an overview of capital adequacy and then further describes the differences and similarities between economic and regulatory capital based on a literature review

The Optimal Rating Philosophy for the Rating of SMEs

Pic Maurice. Silidius et Silis exotiques nouveaux [Col. Malacodermata]. In: Bulletin de la Société entomologique de France, volume 14 (20),1909. pp. 345-347

Format numérique ? Un portfolio étudiant pour la formation en ergothérapie

Un portfolio professionnel étudiant est développé au Programme d’ergothérapie de l’Université d’Ottawa à la suite d’une réflexion sur l’obligation, pour les ergothérapeutes, d’utiliser un portfolio professionnel et sur la volonté de responsabiliser les étudiants face à leurs apprentissages. Nous avons mené une recherche-action pour concevoir le portfolio, faciliter son implantation et évaluer son utilisation en format numérique. Les résultats mettent en lumière la simplicité du contenu et de son organisation, une démarche d’utilisation guidée et un format numérique de niveau novice. Selon les auteurs, le portfolio professionnel étudiant est un outil d’apprentissage intéressant, mais un format numérique complexe risque d’entraver les apprentissages et la réflexion des étudiants.The development of a student professional portfolio in the Occupational Therapy Program at the University of Ottawa was guided by the obligation for occupational therapists to use a portfolio in their daily practice and the need to give a sense of responsibility to students in relation to their studies. A research-action methodology was chosen to conceive the portfolio and its contents, to facilitate its application, and to assess its use in a numerical format. The results of the research support the simplicity of the content and its organisation, a procedure for guided use and a beginner level numerical format. According to the authors, a professional portfolio can be a very interesting learning tool, however, particular attention must be directed to the numerical format so that it does not hinder students’ reflection and learning.Un portafolio profesional del estudiante ha sido desarrollado en el Programa de ergoterapia de la Universidad de Ottawa a raíz de una reflexión sobre la obligación, para los ergoterapeutas, de utilizar un portafolio profesional y sobre la voluntad de responsabilizar los estudiantes en relación con sus aprendizajes. Hemos llevado a cabo una investigación-acción para concebir el portafolio, facilitar su implementación y evaluar su utilización en formato digital. Los resultados hacen resaltar la simplicidad del contenido y de su organización, un proceso de utilización guiado y un formato digital de nivel principiante. Según los autores, el portafolio profesional del estudiante constituye una herramienta de aprendizaje interesante, sin embargo un formato digital complejo podría poner obstáculo a los aprendizajes y a la reflexión de los estudiantes

Systemic Risk or Not?

Drawing from the resource-based view and transaction costs economics, we develop a theoretical framework to explain why small and large firms face different levels of resource access needs and resource access capabilities, which mediate the relationship between firm size and hybrid governance. Employing a sample of 317 venture capital firms, drawn across six European countries, we empirically assess our framework in the context of venture capital syndication. We estimate a path model using structural equation modeling and find, consistent with our theoretical framework, mediating effects of different types of resource access needs and resource access capabilities between VC firm size and syndication frequency. These findings advance the small business literature by highlighting the trade-offs that size imposes on firms that seek to manage their access to external resources through hybrid governance strategies