A multiperiod model is developed to measure the costs posed to the guaranty fund in a setting that incorporates risk-based capital regulations, interest rate risk and the possibility of catastrophic losses. The guaranty contract is modeled as a put option on the asset of the insurance company with a stochastic strike price and an uncertain maturity. The impacts of the key factors of this model ...

Do ETFs, one of the most popular investment products in recent times, benefit individual investors? Using data from one of the largest brokerages in Germany, we find that individual investors do not improve their portfolio performance, even before transactions costs, by using these passive products. Using counterfactual analysis, we show that this occurs mostly from buying ETFs at “wrong” point...

There is a general perception that the large trading volume in initial public offerings is mostly due to ‘‘flippers’’ that are allocated shares in the offering and immediately resell them. On average, however, flipping accounts for only 19% of trading volume and 15% of shares offered during the first two days of trading. Institutions do more flipping than retail customers and hot IPOs are flipp...

We show whether central clearing of a particular class of derivatives lowers counterparty risk. For plausible cases, adding a central clearing counterparty (CCP) for a class of derivatives such as credit default swaps reduces netting efficiency, leading to an increase in average exposure to counterparty default. Further, clearing different classes of derivatives in separate CCPs always increase...

This study by adopting rolling regression techniques investigate whether bank and life insurance equity returns sensitivity to long term unanticipated interest rate changes has been changed since the Bank of England was granted operational independence in May 1997. Our results indicate that there may well have been changes in the way banks and life insurance companies manage interest rate risk....

We provide evidence of “soft” information production in investment banking. Using 2191 municipal bond offerings from 1997-2001, we find that “local” investment banks have substantial comparative and absolute advantages over non-local counterparts – locals charge lower fees and sell bonds at lower yields. Local investment banks’ strongest comparative advantage is at underwriting bonds with highe...

In this article we first document the evidence showing how an efficient retail payment infrastructure enhances economic performance. We then review the policy tools available to promote efficient retail payments in Europe. We argue that while SEPA is an important policy initiative that harmonizes payment methods across the EU, it alone is not enough. Vigorous competition and consumer protection...

This paper compares the timeliness and accuracy of (confidential) government assessments of bank condition against market evaluations of large U.S. bank holding companies. We find that supervisors and bond rating agencies both acquire some information that would help the other group forecast changes in bank condition. In contrast, supervisory assessments and equity market indicators are not str...

[1] Very high-resolution imaging and stereo topographic data obtained during the Galileo G28 encounter with Ganymede show 1) evidence for Europa-like, crustal spreading and resurfacing to form portions of the bright terrain, and 2) bright terrain that appears smooth at Voyager resolution (and thus a strong candidate for cryovolcanism) but instead is tectonically deformed and lacks embayment rel...

We examine the roles of idiosyncratic and systemic funding liquidity risks in bank failures. We estimate a discrete-time hazard model of bank failure using data of U.S. commercial banks between 1985 and 2004, and examine its out-of-sample forecasting performance between 2005 and 2011. The out-of-sample performance comparison shows this model outperforms typical bank failure prediction models. W...