... Obstfeld and Rogoff’s (1995) pioneering work, a series of papers have applied the general equilibrium model with microfounded ... in the plastic surface bacteria has cell walls brilliant twilight falling unbearable fate The second split in half activation ...
Story - puput - 11/20/2010 - 07:55 - 1 comment - 0 attachments
Aggregate stock market returns display negative skewness, the propensity to generate negative returns with greater probability than suggested by a symmetric distribution. A large body of literature has aimed to explain this stylized fact about the distribution of aggregate stock returns (e.g., Fama, 1965, Black, 1976, Christie, 1982, Blanchard and Watson, 1982, Pindyck 1984, French et al., 1987, Hong and Stein, 2003). The evidence on aggregate returns contrasts with another stylized fact, namely, that firm-level returns are positively skewed. For this reason, theories of negative skewness that model single-firm stock markets necessarily depict an incomplete picture. In this paper I provide a unified theory for both stylized facts by explicitly modeling firm level heterogeneity and present evidence consistent with the theory.
The liquidity squeeze during the ongoing sub-prime crisis of 2007-08 has been likened by some observers, including the IMF, to the financial sector turmoil of the Depression era. A nagging problem faced by central banks during the early part of this crisis was the difficulty in getting open-market operations, discount window and securities lending to channel liquidity to the most needy parts of the financial system. Some of the lending facilities such as the discount window were not availed by players, and others when availed merely resulted in hoarding of liquidity by banks and other institutions.
In the UK, for example, banks’ liquidity buffers have experienced an almost permanent upward shift of 30% in August 2007 (relative to their pre August levels) and the result has been a rise in borrowing costs between banks and an almost complete drying up of liquidity exchange in money markets beyond the very short maturities. In response, central banks around the world, most notably the US Fed, have undertaken significant changes to their lender-of-last-resort facilities, in particular, by extending maturities of discount window and open-market operations, extending eligible collateral to include investment-grade debt securities, and making such adjustments for lending to primary dealers as well.
There is a substantial literature examining performance after a banking merger. An offshoot of this is a second group of studies that look at the impact of bank mergers on operating costs and efficiency. The area of credit quality, hoerver, has received little attention. Credit quality is a key determinant of banking profitability. Weakness in this area can be disastrous. Southeast Bank in Florida failed in 1991 because of problems with its commercial real estate loan portfolio. Bank of America was sold to Nations Bank in 1997 primarily because of credit problems resulting from the acquisition of Security Pacific. Little attention, however, has been paid to the question of credit quality after a merger.
Credit quality can be difficult to manage and requires constant management attention to keep it under control. For this reason, it seems likely that quality could slip right after the merger as the two institutions are combined. However, in the long run, one would expect quality to return to its pre-merger level, or perhaps to improve a bit as the merged BHC combines the best practices of the buyer and target. This paper tests this hypothesis by looking at the changes in credit quality from pre-merger levels to the levels 1, 2, and 3 years after the merger. It also examines whether the combined institutions have credit ratios that differ from those of industry-wide BHCs in the year before the merger.
