Search results for: Credit%20risk

Authors: I. Lucas, N. Schomberg, F-A. Couturier

Abstract:

Most empirical studies have analyzed how liquidity risks faced by individual institutions turn into systemic risk. Recent banking crisis has highlighted the importance of grasping and controlling the systemic risk, and the acceptance by Central Banks to ease their monetary policies for saving default or illiquid banks. This last point shows that banks would pay less attention to liquidity risk which, in turn, can become a new important channel of loss. The financial regulation focuses on the most important and “systemic” banks in the global network. However, to quantify the expected loss associated with liquidity risk, it is worth to analyze sensitivity to this channel for the various elements of the global bank network. A small bank is not considered as potentially systemic; however the interaction of small banks all together can become a systemic element. This paper analyzes the impact of medium and small banks interaction on a set of banks which is considered as the core of the network. The proposed method uses the structure of agent-based model in a two-class environment. In first class, the data from actual balance sheets of 22 large and systemic banks (such as BNP Paribas or Barclays) are collected. In second one, to model a network as closely as possible to actual interbank market, 578 fictitious banks smaller than the ones belonging to first class have been split into two groups of small and medium ones. All banks are active on the European interbank network and have deposit and market activity. A simulation of 12 three month periods representing a midterm time interval three years is projected. In each period, there is a set of behavioral descriptions: repayment of matured loans, liquidation of deposits, income from securities, collection of new deposits, new demands of credit, and securities sale. The last two actions are part of refunding process developed in this paper. To strengthen reliability of proposed model, random parameters dynamics are managed with stochastic equations as rates the variations of which are generated by Vasicek model. The Central Bank is considered as the lender of last resort which allows banks to borrow at REPO rate and some ejection conditions of banks from the system are introduced.

Liquidity crunch due to exogenous crisis is simulated in the first class and the loss impact on other bank classes is analyzed though aggregate values representing the aggregate of loans and/or the aggregate of borrowing between classes. It is mainly shown that the three groups of European interbank network do not have the same response, and that intermediate banks are the most sensitive to liquidity risk.

Keywords: Systemic Risk, Financial Contagion, Liquidity Risk, Interbank Market, Network Model.

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Authors: Suraiya Jabin, Kamal K. Bharadwaj

Abstract:

In the recent past Learning Classifier Systems have been successfully used for data mining. Learning Classifier System (LCS) is basically a machine learning technique which combines evolutionary computing, reinforcement learning, supervised or unsupervised learning and heuristics to produce adaptive systems. A LCS learns by interacting with an environment from which it receives feedback in the form of numerical reward. Learning is achieved by trying to maximize the amount of reward received. All LCSs models more or less, comprise four main components; a finite population of condition–action rules, called classifiers; the performance component, which governs the interaction with the environment; the credit assignment component, which distributes the reward received from the environment to the classifiers accountable for the rewards obtained; the discovery component, which is responsible for discovering better rules and improving existing ones through a genetic algorithm. The concatenate of the production rules in the LCS form the genotype, and therefore the GA should operate on a population of classifier systems. This approach is known as the 'Pittsburgh' Classifier Systems. Other LCS that perform their GA at the rule level within a population are known as 'Mitchigan' Classifier Systems. The most predominant representation of the discovered knowledge is the standard production rules (PRs) in the form of IF P THEN D. The PRs, however, are unable to handle exceptions and do not exhibit variable precision. The Censored Production Rules (CPRs), an extension of PRs, were proposed by Michalski and Winston that exhibit variable precision and supports an efficient mechanism for handling exceptions. A CPR is an augmented production rule of the form: IF P THEN D UNLESS C, where Censor C is an exception to the rule. Such rules are employed in situations, in which conditional statement IF P THEN D holds frequently and the assertion C holds rarely. By using a rule of this type we are free to ignore the exception conditions, when the resources needed to establish its presence are tight or there is simply no information available as to whether it holds or not. Thus, the IF P THEN D part of CPR expresses important information, while the UNLESS C part acts only as a switch and changes the polarity of D to ~D. In this paper Pittsburgh style LCSs approach is used for automated discovery of CPRs. An appropriate encoding scheme is suggested to represent a chromosome consisting of fixed size set of CPRs. Suitable genetic operators are designed for the set of CPRs and individual CPRs and also appropriate fitness function is proposed that incorporates basic constraints on CPR. Experimental results are presented to demonstrate the performance of the proposed learning classifier system.

Keywords: Censored Production Rule, Data Mining, GeneticAlgorithm, Learning Classifier System, Machine Learning, PittsburgApproach, , Reinforcement learning.

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Authors: W. S. Barber, S. L. King

Abstract:

This paper is a qualitative case study analysis of the development of a fully online learning community of graduate students through arts-based community building activities. With increasing numbers and types of online learning spaces, it is incumbent upon educators to continue to push the edge of what best practices look like in digital learning environments. In digital learning spaces, instructors can no longer be seen as purveyors of content knowledge to be examined at the end of a set course by a final test or exam. The rapid and fluid dissemination of information via Web 3.0 demands that we reshape our approach to teaching and learning, from one that is content-focused to one that is process-driven. Rather than having instructors as formal leaders, today’s digital learning environments require us to share expertise, as it is the collective experiences and knowledge of all students together with the instructors that help to create a very different kind of learning community. This paper focuses on innovations pursued in a 36 hour 12 week graduate course in higher education entitled “Critical and Reflective Practice”. The authors chronicle their journey to developing a fully online learning community (FOLC) by emphasizing the elements of social, cognitive, emotional and digital spaces that form a moving interplay through the community. In this way, students embrace anywhere anytime learning and often take the learning, as well as the relationships they build and skills they acquire, beyond the digital class into real world situations. We argue that in order to increase student online engagement, pedagogical approaches need to stem from two primary elements, both creativity and critical reflection, that are essential pillars upon which instructors can co-design learning environments with students. The theoretical framework for the paper is based on the interaction and interdependence of Creativity, Intuition, Critical Reflection, Social Constructivism and FOLCs. By leveraging students’ embedded familiarity with a wide variety of technologies, this case study of a graduate level course on critical reflection in education, examines how relationships, quality of work produced, and student engagement can improve by using creative and imaginative pedagogical strategies. The authors examine their professional pedagogical strategies through the lens that the teacher acts as facilitator, guide and co-designer. In a world where students can easily search for and organize information as self-directed processes, creativity and connection can at times be lost in the digitized course environment. The paper concludes by posing further questions as to how institutions of higher education may be challenged to restructure their credit granting courses into more flexible modules, and how students need to be considered an important part of assessment and evaluation strategies. By introducing creativity and critical reflection as central features of the digital learning spaces, notions of best practices in digital teaching and learning emerge.

Keywords: Online, pedagogy, learning, communities.

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Authors: Marijana Ivanov, Roman Šubić

Abstract:

This study analyzes the critical gaps in the architecture of European stability and the expected role of the banking union as the new important step towards completing the Economic and Monetary Union that should enable the creation of safe and sound financial sector for the euro area market. The single rulebook together with the Single Supervisory Mechanism and the Single Resolution Mechanism - as two main pillars of the banking union, should provide a consistent application of common rules and administrative standards for supervision, recovery and resolution of banks – with the final aim of replacing the former bail-out practice with the bail-in system through which possible future bank failures would be resolved by their own funds, i.e. with minimal costs for taxpayers and real economy. In this way, the vicious circle between banks and sovereigns would be broken. It would also reduce the financial fragmentation recorded in the years of crisis as the result of divergent behaviors in risk premium, lending activities and interest rates between the core and the periphery. In addition, it should strengthen the effectiveness of monetary transmission channels, in particular the credit channels and overflows of liquidity on the money market which, due to the fragmentation of the common financial market, has been significantly disabled in period of crisis. However, contrary to all the positive expectations related to the future functioning of the banking union, major findings of this study indicate that characteristics of the economic system in which the banking union will operate should not be ignored. The euro area is an integration of strong and weak entities with large differences in economic development, wealth, assets of banking systems, growth rates and accountability of fiscal policy. The analysis indicates that low and unbalanced economic growth remains a challenge for the maintenance of financial stability and this problem cannot be resolved just by a single supervision. In many countries bank assets exceed their GDP by several times and large banks are still a matter of concern, because of their systemic importance for individual countries and the euro zone as a whole. The creation of the Single Supervisory Mechanism and the Single Resolution Mechanism is a response to the European crisis, which has particularly affected peripheral countries and caused the associated loop between the banking crisis and the sovereign debt crisis, but has also influenced banks’ balance sheets in the core countries, as the result of crossborder capital flows. The creation of the SSM and the SRM should prevent the similar episodes to happen again and should also provide a new opportunity for strengthening of economic and financial systems of the peripheral countries. On the other hand, there is a potential threat that future focus of the ECB, resolution mechanism and other relevant institutions will be extremely oriented towards large and significant banks (whereby one half of them operate in the core and most important euro area countries), and therefore it remains questionable to what extent will the common resolution funds will be used for rescue of less important institutions. Recent geopolitical developments will be the optimal indicator to show whether the previously established mechanisms are sufficient enough to maintain the adequate financial stability in the euro area market.

Keywords: Banking Union, financial integration, single supervisory mechanism (SSM).

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