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Journal Article
The capitalization and portfolio risk of insurance companies

The strategies of financial intermediaries in the United States presumed a stability of interest rates that began to break down in the late 1960s. Not only did rising interest rates during the past two decades tend to depress the value of the assets of all intermediaries, they also fostered competition among intermediaries as all sought new opportunities for profit. In order to cope, many financial institutions assumed new bets by "reaching" for riskier assets offering higher yields or by operating with less capital per dollar of assets. To varying degrees, many insurance companies have ...
New England Economic Review , Issue Jul , Pages 43-57

Journal Article
Value at risk: new approaches to risk management

Managing risk has always been an integral part of banking. In the past two years an approach to risk management called "Value at Risk" has been accepted by both practitioners and regulators as the "right" way to measure risk, becoming a de facto industry standard. Yet, the danger is that overreliance on value at risk can give risk managers a false sense of security or lull them into complacency. Value at risk is only one of many tools of managing risk, and it is based on a number of unrealistic assumptions. There is no generally accepted way to calculate it, and various methods can ...
New England Economic Review , Issue Sep , Pages 3-13

Journal Article
Specialization, risk, and capital in banking

Diversification is certainly the simplest and perhaps the oldest approach to managing the trade-off between portfolio risk and return. Because diversification tends to reduce risk without a proportional reduction in returns, an overwhelming majority of commercial banks have diversified portfolios. Larger banks usually are organized into multiple specialized lines of business; smaller banks generally hold a higher proportion of marketable securities whose returns are not tied to a particular geographic market. A much smaller number of banks have chosen to ignore the benefits of diversification ...
New England Economic Review , Issue Nov , Pages 51-73

Journal Article
Interest rate derivatives and asset-liability management by commercial banks

Bank participation in derivative markets has risen sharply in recent years. The total amount of interest rate, currency, commodity, and equity contracts at U.S. commercial and savings banks soared from $6.8 trillion in 1990 to $11.9 trillion in 1993, an increase of 75 percent. A major concern facing policymakers and bank regulators today is the possibility that the rising use of derivatives has increased the riskiness of individual banks and of the banking system as a whole.> This study uses quarterly Call Report data to shed some light on the pattern of derivative use by U.S. commercial ...
New England Economic Review , Issue Jan , Pages 17-28

Journal Article
Risk-adjusted performance of mutual funds

Mutual funds are now the preferred way for individual investors and many institutions to participate in capital markets, and their popularity has increased demand for evaluations of fund performance. Many business publications now rank mutual funds according to their performance, and information services exist specifically for this purpose. There is no general agreement, however, about how best to measure and compare fund performance and on what information funds should disclose to investors. ; Risk and performance measurement is an active area for academic research and continues to be of ...
New England Economic Review , Issue Sep , Pages 33-48

Journal Article
Resolving a banking crisis: what worked in New England

Many Asian economies are now experiencing economic hardship, their troubles stemming in part from crises in their banking sectors. Given the important role the banking sector plays in these economies, resolution of their banking crises is a vital first step toward resuming economic growth. Unfortunately, the steps taken so far appear inadequate, and many observers compare current attempts to those of U.S. regulators during our initial efforts to resolve the S&L crisis. Given the lengthy time it took and the high cost of the taxpayer-supported resolution, this is not a comparison the Asian ...
New England Economic Review , Issue Sep , Pages 49-62

Journal Article
The emergence of the venture capital industry

New England Economic Review , Issue Jul , Pages 64-79

Journal Article
Measuring credit risk in interest rate swaps

New England Economic Review , Issue Nov , Pages 29-38

Journal Article
Consumption risk-sharing across G-7 countries

An intensely debated issue in international economics concerns the extent to which investors exploit the benefits from international trade in financial assets. Such benefits have long been acknowledged in theory but, despite the continuing process of financial integration and globalization, it is unclear whether they are fully exploited in actual practice. ; This article reexamines some of the evidence concerning the degree to which international financial markets help countries diversify away country-specific risks to achieve a mutually preferable allocation of consumption. By looking at ...
New England Economic Review , Issue Mar , Pages 3-14

Working Paper
Bank diversification, market structure and bank risk taking: theory and evidence from U.S. commercial banks

This paper studies how a bank?s diversification affects its own risk taking behavior and the risk taking of competing, nondiversified banks. By combining theories of bank organization, market structure and risk taking, I show that greater geographic diversification of banks changes a bank?s lending behavior and market interest rates, which also has ramifications for nondiversified competitors due to interactions in the banking market. Empirical results obtained from the U.S. commercial banking sector support this relationship as they indicate that a bank?s risk taking is lower when its ...
Supervisory Research and Analysis Working Papers , Paper QAU12-2



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