Much theory attempts to find dimensions of “bank specialness,” typically from a synergy of combining deposits with loans. Banks’ role as delegated monitor explains why they tend to hold large and well diversified loan portfolios, and why they tend to fund themselves mostly with debt (Diamond, 1984). Bank deposits – their main source of debt – tend to be short term and subject to a ‘sequential service constraint’, meaning that priority of payment comes on a first-come, first-served basis. This unique capital structure stems from bank-loan opaqueness. Loans make “bad” collateral because outsiders can not value them; by subjecting themselves to the possibility of a run, banks increase their borrowing capacity against their loans (Calomiris and Kahn, 1991; Flannery, 1994; Diamond and Rajan, 2001).
Fama (1985) argues that liquidity production helps explain ‘what’s different about banks’. Private information from the business checking account gives banks an advantage in lending over other intermediaries. Banks provide liquidity not only to demand depositors, however, but also to borrowers via lines of credit and un-drawn loan commitments (we use these terms interchangeably). Both contracts allow customers to receive cash on demand. The liquidity insurance role of banks exposes them to the risk that they will have insufficient cash to meet random demands from their depositors or borrowers. This paper shows that banks reduce their liquidity risk by combining transactions deposit with loan commitments, thus helping explain a key feature of the industry.
The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. The 2008/9 financial crisis highlighted the importance of evaluating vulnerabilities owing to interconnectedness, or Too-Connected-to-Fail risk, among financial institutions for country monitoring, financial surveillance, investment analysis and risk management purposes. This paper illustrates the use of balance sheet-based network analysis to evaluate interconnectedness risk, under extreme adverse scenarios, in banking systems in mature and emerging market countries, and between individual banks in Chile, an advanced emerging market economy.
The application of crop protection products is an important step in the growing of agronomic crops. Traditionally crop protection products are uniformly applied throughout the field without considering spatial variability of weeds. Thornton et al. (1990) proved that the weeds are not distributed uniformly within crop fields. Blumhorst et al. (1990) reported that herbicide application rate varies with soil properties like pH, moisture content, and organic matter.
Hence applying the crop protection products uniformly results in over application, wastage, environmental problems, off target drift etc. If herbicides are applied according to spatial variability of weeds, crop production will be improved and herbicide waste will be reduced (Johnson et al. 1995).
