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Insurance guarantee schemes aim to protect policyholders from the costs of insurer insolvencies. However, guarantee schemes can also reduce insurers’ incentives to conduct appropriate risk management. We investigate stock insurers’ risk-shifting behavior for insurance guarantee schemes under the two different financing alternatives: a flat-rate premium assessment versus a risk-based premium assessment. We identify which guarantee scheme maximizes policyholders’ welfare, measured by their expected utility. We find that the risk-based insurance guarantee scheme can only mitigate the insurer’s risk-shifting behavior if a substantial premium loading is present. Furthermore, the risk-based guarantee scheme is superior for improving policyholders’ welfare compared to the flat-rate scheme when the mitigating effect occurs.
The concept of length, the concept is synonymous, the concept is nothing more than, the proper definition of a concept ... Forget programs and visions; the operational approach refers specifically to concepts, and in a very specific way: it describes the process whereby concepts are transformed into a series of operations—which, in their turn, allow to measure all sorts of objects. Operationalizing means building a bridge from concepts to measurement, and then to the world. In our case: from the concepts of literary theory, through some form of quantification, to literary texts.
We would study not style as such, but style 'at the scale of the sentence': the lowest level, it seemed, at which style as a distinct phenomenon became visible. Implicitly, we were defining style as a combination of smaller linguistic units, which made it, in consequence, particularly sensitive to changes in scale—from words to clauses to whole sentences.
The amino acid content (alanine/arginine, glutamine, proline, taurine) of five different lichen species (Evernia prunastri, Hypogymnia physodes, Parmelia sulcata, Physcia adscendens, Xanthoria parietina) from different parts of Germany and NW France with different atmospheric nitrogen depositions was determined.
The study revealed that the so called nitrophytic lichen species (Physcia adscendens, Xanthoria parietina) had no higher amino acid contents as compared with the other species. The amino acid contents of five different lichen species from the same tree varied without regard to the nitrophily of the species. The contents of amino acids of the lichen species studied from Bonn is four to twelve times higher as in the same species in the Vosges Mountains, France. The amount of amino acids in nitrophytic species (Xanthoria parietina, Physcia adscendens) from a region with high load of atmospheric nitrogen (35 kg/y/ha) is in average 5 times higher than in the same species from a region with low nitrogen immission (16 kg/y/ha).
It can be concluded that the amino acid contents of lichens reflects the atmospheric nitrogen load and that the amino acid content of so called nitrophytic lichen species is not higher as in other species, that lichens are passive sampler and take up the available nitrogen but make no use of it but store it as amino acids. On the other hand, the conductivity of the cell liquid (as a measure of the osmotic pressure) of nitrophytic lichen species is higher as compared with non-nitrophytic species. Thus the “nitrophily” of these species is presumably not based upon the facility to higher nitrogen uptake but osmotic tolerance against the salt effects of nitrogen compounds. Within nitrophytic species, the osmotic values of Phaeophyscia orbicularis are double as high as those from Physcia adscendens, which is explained by the higher tolerance of Phaeophyscia against dry deposition. The higher osmotic values of nitrophilous lichen species lead to the conclusion that they are also drought resistant species and occur in regions with low humidity where they are more competitive than other lichen species.
The IMFS Interdisciplinary Study 2/2013 contains speeches of Michael Burda (Humboldt University ), Benoît Coeuré (European Central Bank), Stefan Gerlach (Bank of Ireland and former IMFS Professor), Patrick Honohan (Bank of Ireland), Sabine Lautenschläger (Deutsche Bundesbank), Athanasios Orphanides (MIT) and Helmut Siekmann as well as Volker Wieland.
This study contains articles based on speeches and presentations at the 14th CFS-IMFS Conference "The ECB and its Watchers" on June 15, 2012 by Mario Draghi, John Vickers, Peter Praet, Lucrezia Reichlin, Vitor Gaspar, Lucio Pench and Stefan Gerlach and a post-conference outlook by Helmut Siekmann and Volker Wieland.
A concurrent implementation of software transactional memory in Concurrent Haskell using a call-by-need functional language with processes and futures is given. The description of the small-step operational semantics is precise and explicit, and employs an early abort of conflicting transactions. A proof of correctness of the implementation is given for a contextual semantics with may- and should-convergence. This implies that our implementation is a correct evaluator for an abstract specification equipped with a big-step semantics.
This paper shows equivalence of applicative similarity and contextual approximation, and hence also of bisimilarity and contextual equivalence, in LR, the deterministic call-by-need lambda calculus with letrec extended by data constructors, case-expressions and Haskell's seqoperator. LR models an untyped version of the core language of Haskell. Bisimilarity simplifies equivalence proofs in the calculus and opens a way for more convenient correctness proofs for program transformations.
The proof is by a fully abstract and surjective transfer of the contextual approximation into a call-by-name calculus, which is an extension of Abramsky's lazy lambda calculus. In the latter calculus equivalence of similarity and contextual approximation can be shown by Howe's method. Using an equivalent but inductive definition of behavioral preorder we then transfer similarity back to the calculus LR.
The translation from the call-by-need letrec calculus into the extended call-by-name lambda calculus is the composition of two translations. The first translation replaces the call-by-need strategy by a call-by-name strategy and its correctness is shown by exploiting infinite tress, which emerge by unfolding the letrec expressions. The second translation encodes letrec-expressions by using multi-fixpoint combinators and its correctness is shown syntactically by comparing reductions of both calculi. A further result of this paper is an isomorphism between the mentioned calculi, and also with a call-by-need letrec calculus with a less complex definition of reduction than LR.
Motivated by our experience in analyzing properties of translations between programming languages with observational semantics, this paper clarifies the notions, the relevant questions, and the methods, constructs a general framework, and provides several tools for proving various correctness properties of translations like adequacy and full abstractness. The presented framework can directly be applied to the observational equivalences derived from the operational semantics of programming calculi, and also to other situations, and thus has a wide range of applications.
Our motivation is the question whether the lazy lambda calculus, a pure lambda calculus with the leftmost outermost rewriting strategy, considered under observational semantics, or extensions thereof, are an adequate model for semantic equivalences in real-world purely functional programming languages, in particular for a pure core language of Haskell. We explore several extensions of the lazy lambda calculus: addition of a seq-operator, addition of data constructors and case-expressions, and their combination, focusing on conservativity of these extensions. In addition to untyped calculi, we study their monomorphically and polymorphically typed versions. For most of the extensions we obtain non-conservativity which we prove by providing counterexamples. However, we prove conservativity of the extension by data constructors and case in the monomorphically typed scenario.
Our motivation is the question whether the lazy lambda calculus, a pure lambda calculus with the leftmost outermost rewriting strategy, considered under observational semantics, or extensions thereof, are an adequate model for semantic equivalences in real-world purely functional programming languages, in particular for a pure core language of Haskell. We explore several extensions of the lazy lambda calculus: addition of a seq-operator, addition of data constructors and case-expressions, and their combination, focusing on conservativity of these extensions. In addition to untyped calculi, we study their monomorphically and polymorphically typed versions. For most of the extensions we obtain non-conservativity which we prove by providing counterexamples. However, we prove conservativity of the extension by data constructors and case in the monomorphically typed scenario.
This note proposes a new set-up for the fund backing the Single Resolution Mechanism (SRM). The proposed fund is a Multi-Tier Resolution Fund (MTRF), restricting the joint and several supranational liability to a limited range of losses, bounded by national liability at the upper and the lower end. The layers are, in ascending order: a national fund (first losses), a European fund (second losses), the national budget (third losses), the ESM (fourth losses, as a backup for sovereigns). The system works like a reinsurance scheme, providing clear limits to European-level joint liability, and therefore confining moral hazard. At the same time, it allows for some degree of risk sharing, which is important for financial stability if shocks to the financial system are exogenous (e.g., of a supranational macroeconomic nature). The text has four parts. Section A describes the operation of the Multi-Tier Resolution Fund, assuming the fund capital to be fully paid-in (“Steady State“). Section B deals with the build-up phase of the fund capital (“Build up“). Section C discusses how the proposal deals with the apparent incentive conflicts. The final Section D summarizes open questions which need further thought (“Open Questions“).
This policy letter provides an overview of the strengths, weaknesses, risks and opportunities of the upcoming comprehensive risk assessment, a euro area-wide evaluation of bank balance sheets and business models. If carried out properly, the 2014 comprehensive assessment will lead the euro area into a new era of banking supervision. Policy makers in euro area countries are now under severe pressure to define a credible backstop framework for banks. This framework, as the author argues, needs to be a broad, quasi-European system of mutually reinforcing backstops.
June 4th, 2013 marks the formal launch of the third generation of the Equator Principles (EP III) and the tenth anniversary of the EPs – enough reasons for evaluating the EPs initiative from an economic ethics and business ethics perspectives. In particular, this essay deals with the following questions: What are the EPs and where are they going? What has been achieved so far by the EPs? What are the strengths and weaknesses of the EPs? Which necessary reform steps need to be adopted in order to further strengthen the EPs framework? Can the EPs be regarded as a role-model in the field of sustainable finance and CSR? The paper is structured as follows: The first chapter defines the term EPs and introduces the keywords related to the EPs framework. The second chapter gives a brief overview of the history of the EPs. The third chapter discusses the Equator Principles Association, the governing, administering, and managing institution behind the EPs. The fourth chapter summarizes the main features and characteristics of the newly released third generation of the EPs. The fifth chapter critically evaluates the EP III from an economic ethics and business ethics perspectives. The paper concludes with a summary of the main findings.
The financial services industry worldwide has undergone major transformation since the late 1970s. Technological advancements in information processing and communication facilitated financial innovation and narrowed traditional distinctions in financial products and services, allowing them to become close substitutes for one another. The deregulation process in many major economies prior to the recent financial crisis blurred the traditional lines of demarcation between the distinct types of financial institutions, exposing those firms to new competitors in their traditional business areas, while the increasing globalization of financial markets fostered the provision of financial services across national borders. Against this backdrop, a trend toward consolidation across financial sectors as well as across national borders increasingly manifested itself since the 1990s. The developments in the financial markets ever more intensified competition in the financial services industry and induced financial institutions to redefine their business strategies in search of higher profitability and growth opportunities. Consolidation across distinct financial sectors, i.e. financial conglomeration, in particular became a popular business strategy in light of the potential operational synergies and diversification benefits it can offer. This trend spurred the growth of diversified financial groups, the so-called financial conglomerates, which commingle banking, securities, and insurance activities under one corporate umbrella.5 Still today, large, complex financial conglomerates are represented among major players in the financial markets worldwide, whose activities not only sway across traditional boundaries of banking, securities, and insurance sectors but also across national borders.
Notwithstanding the economic benefits that conglomeration may produce as a business strategy, the emergence of financial conglomerates also exacerbated existing and created new prudential risks in the financial system. 6 The mixing of a variety of financial products and services under one corporate roof and the generally large and complex group structure of financial conglomerates expose such organizations to specific group risks such as contagion and arbitrage risk as well as systemic risk. When realized, these risks may not only cause the failure of an entire financial group but threaten the stability of the financial system as a whole, as evidenced by the events during recent financial crisis of 2007-2009...
Following the experience of the global financial crisis, central banks have been asked to undertake unprecedented responsibilities. Governments and the public appear to have high expectations that monetary policy can provide solutions to problems that do not necessarily fit in the realm of traditional monetary policy. This paper examines three broad public policy goals that may overburden monetary policy: full employment; fiscal sustainability; and financial stability. While central banks have a crucial position in public policy, the appropriate policy mix also involves other institutions, and overreliance on monetary policy to achieve these goals is bound to disappoint. Central Bank policies that facilitate postponement of needed policy actions by governments may also have longer-term adverse consequences that could outweigh more immediate benefits. Overburdening monetary policy may eventually diminish and compromise the independence and credibility of the central bank, thereby reducing its effectiveness to preserve price stability and contribute to crisis management.
This paper tests whether an increase in insured deposits causes banks to become more risky. We use variation introduced by the U.S. Emergency Economic Stabilization Act in October 2008, which increased the deposit insurance coverage from $100,000 to $250,000 per depositor and bank. For some banks, the amount of insured deposits increased significantly; for others, it was a minor change. Our analysis shows that the more affected banks increase their investments in risky commercial real estate loans and become more risky relative to unaffected banks following the change. This effect is most distinct for affected banks that are low capitalized.
We introduce a new measure of systemic risk, the change in the conditional joint probability of default, which assesses the effects of the interdependence in the financial system on the general default risk of sovereign debtors. We apply our measure to examine the fragility of the European financial system during the ongoing sovereign debt crisis. Our analysis documents an increase in systemic risk contributions in the euro area during the post-Lehman global recession and especially after the beginning of the euro area sovereign debt crisis. We also find a considerable potential for cascade effects from small to large euro area sovereigns. When we investigate the effect of sovereign default on the European Union banking system, we find that bigger banks, banks with riskier activities, with poor asset quality, and funding and liquidity constraints tend to be more vulnerable to a sovereign default. Surprisingly, an increase in leverage does not seem to influence systemic vulnerability.
We show that market discipline, defined as the extent to which firm specific risk characteristics are reflected in market prices, eroded during the recent financial crisis in 2008. We design a novel test of changes in market discipline based on the relation between firm specific risk characteristics and debt-to-equity hedge ratios. We find that market discipline already weakened after the rescue of Bear Stearns before disappearing almost entirely after the failure of Lehman Brothers. The effect is stronger for investment banks and large financial institutions, while there is no comparable effect for non-financial firms.