Capital Injections Research Articles

Banking Regulatory and Market Framework in Ghana: Strength, Weaknesses, Opportunities and Threats

The purpose of this paper is to review the several reforms and regulations that were passed during and after the economy liberalization in the banking sector of Ghana and to assess whether there is adequate regulations that can protect private capital and the financial sector of Ghana. Bank of Ghana was mandated to carry out regulatory and supervisory function of the banking sector of Ghana and to institute necessary reforms that would protect the financial sector in Ghana. Some of the notable regulations that were passed in recent times in order to be abreast with the global changes included: Credit referencing bureau, Liquidity from capital injection, Basel II, Cheque clearing cycle. The study is a qualitative research involving content analysis and it employed purposive sampling methodology to selects key persons with the knowledge and expertise to contribute to the study. This study delve into details and in-depth into the banking sector of the Ghana. The paper revealed that the reforms and regulation introduced by the Bank of Ghana has contributed immersely to the social-economic development of Ghana and assessed the strengths, weaknesses, opportunities and threats of the financial sector. The study professed some recommendations that would ensure that the Bank of Ghana continues to ensure a sound, competitive and efficient financial system in Ghana.

Omega diffusion risk model with surplus-dependent tax and capital injections

In this paper, we propose and study an Omega risk model with a constant bankruptcy function, surplus-dependent tax payments and capital injections in a time-homogeneous diffusion setting. The surplus value process is both refracted (paying tax) at its running maximum and reflected (injecting capital) at a lower constant boundary. The new model incorporates practical features from the Omega risk model (Albrecher et al., 2011), the risk model with tax (Albrecher and Hipp, 2007), and the risk model with capital injections (Albrecher and Ivanovs, 2014). The study of this new risk model is closely related to the Azéma–Yor process, which is a process refracted by its running maximum. We explicitly characterize the Laplace transform of the occupation time of an Azéma–Yor process below a constant level until the first passage time of another Azéma–Yor process or until an independent exponential time. We also consider the case when the process has a lower reflecting boundary. This result unifies and extends recent results of Li and Zhou (2013) and Zhang (2015). We explicitly characterize the Laplace transform of the time of bankruptcy in the Omega risk model with tax and capital injections up to eigen-functions, and determine the expected present value of tax payments until default. We also discuss a further extension to occupation functionals through stochastic time-change, which handles the case of a non-constant bankruptcy function. Finally we present examples using a Brownian motion with drift, and discuss the pricing of quantile options written on the Azéma–Yor process.

Optimal risk and dividend control of an insurance company with exponential premium principle and liquidation value

Assume that an insurer can control it’s surplus by paying dividends, purchasing reinsurance and injecting capital. The exponential premium principle is used when pricing insurance contract instead of the expected value principle. Under the objective of maximizing the company’s value, we identify the optimal strategies with liquidation value and transaction costs. The results illustrate that the insurer should buy less reinsurance when the surplus increases, capital injection should be considered if and only if the transaction costs and the liquidation value are relatively low, dividends are paid according to barrier strategy if the dividend rate is unrestricted or threshold strategy if the dividend rate is bounded.

Institutional and regulatory framework for biodiesel production: International perspectives and lessons for South Africa

Biodiesel is produced from a range of feedstock including oil seeds (canola/rape and soya beans), as well as used cooking oil. This is done by converting the oil to methyl esters in a transesterification process that yields glycerine as one of the by-products. Biodiesel production is largely dependent on the policy and the institutional framework put in place by host economies. This paper examines the institutional and regulatory frameworks established in leading biodiesel producing countries and compares them to the situation in South Africa. It also analyses the interactions of biodiesel industry players at government and producer levels to ascertain the degree of economic viability of proposed and current projects against legislation. There are two broad findings that the paper brings to the fore. Firstly, policy regime and regulatory frameworks have been essential ingredients in the promulgation of biodiesel in the energy mix. Biodiesel policies have been driven by market expansion and technological change. Secondly, functional institutions are key enablers in the production and distribution of biodiesel. A key lesson for South Africa is that it has to make a clear choice on which form of renewable energy to use, as uptake of the technology is mainly driven by subsidies and incentives which require huge capital injections. If South Africa embraces the subsidy route it needs to come up with a policy that can survive the post-subsidy era. More importantly, South Africa needs to find a way that will make the costs of biodiesel competitive when compared to fossil fuels.

Optimal dividends and capital injections for a spectrally positive Lévy process

This paper investigates an optimal dividend and capital injection problem for a spectrally positive Lévy process, where the dividend rate is restricted. Both the ruin penalty and the costs from the transactions of capital injection are considered. The objective is to maximize the total value of the expected discounted dividends, the penalized discounted capital injections before ruin, and the expected discounted ruin penalty. By the fluctuation theory of Lévy processes, the optimal dividend and capital injection strategy is obtained. We also find that the optimal return function can be expressed in terms of the scale functions of Lévy processes. Besides, a series of numerical examples are provided to illustrate our consults.

Commercial Bank Small Business Lending Pre and Post Crisis

We analyze small business lending at U.S. commercial banks, how it has changed over time and how it differs by bank size. Specifically, we examine the impact of government policy intervention on small business lending in the aftermath of the financial crisis. We find several important results. First, we find that the Troubled-Asset Relief Program’s (TARP) $200 billion Capital Purchase Program (CPP) had little impact on the banks that received capital injections’ small business lending. Second, the Small Business Loan Fund (SBLF) lending program appears to have been a success as banks participating in the loan fund increased their lending to small businesses. Finally, we find that financial turmoil had a substantial negative impact on lending to small businesses at community banks but not their large bank counterparts. This result suggests that the larger banks may have behaved in a manner consistent with too big to fail. Collectively, these results provide important insights for policy makers as they continue to deal with the credit access issues of small firms.

Implementation situation and analysis of ophthalmology hierarchical diagnosis and treatment in municipal public hospitals

Objective To provide the basis for drawing up countermeasures, use the SWOT method to analyze the strengths, weaknesses, opportunities and threats of ophthalmology in municipal public hospitals faced after the implementation of hierarchical diagnosis and treatment. Methods Numbers of outpatients, discharged patients, disease category, and two-way referral rate were analyzed contrastively in three departments of ophthalmology in municipal public hospitals before and after the implementation of hierarchical diagnosis and treatment from October to December in 2014; 20 medical workers were depth interviewed. SWOT method was applied to analyze the strengths, weaknesses, opportunities and threats of ophthalmology in municipal public hospitals. Results From October to December in 2014, numbers outpatients in three municipal public hospitals was 48 031, reduced by 7.22% from a year earlier. Numbers of discharged patients was 1 732, increased by 3.16% from a year earlier. 437 patients needed referral forms but only 31 got ones. Up-referral rate was 7.09%, comparing referral back rate was 0. Conclusions Although Ophthalmology Departments in municipal public hospitals have the advantages of technology, equipment, and comprehensive strength, they face weaknesses and challenges like loss policy support, low government investment, and too much private capital injection. Great importance should be put to the policy established by National Health and Family Planning Commission of the PRC on hierarchical diagnosis and treatment and the implementation of two-way referral. According to SWOT analysis, corresponding countermeasures should be formulated. Key words: Ophthalmology; Hierarchical diagnosis and treatment; Two-way referral; SWOT analysis

Optimal risk and dividend strategies with transaction costs and terminal value

This paper assumes that an insurance company can control the surplus by paying dividends, raising money and buying proportional reinsurance dynamically. The reinsurance premium is assumed to be calculated via the variance premium principle. Under the objective of maximizing the insurance company's value, we identify the optimal joint strategies and consider the effects of transaction costs and arbitrary terminal value at bankruptcy. From the results, we see that refinancing should be considered if and only if the terminal value and the transaction costs are not too high and the company is on the brink of bankruptcy, and the amount of each capital injection remains constant; the optimal ceded proportion of risk decreases with the current surplus and remains constant when the surplus exceeds some constant level; the optimal dividend distribution policy is of barrier type when the dividend rate is unrestricted or is of threshold type when the dividend rate is bounded, respectively. In particular, the insurance company should declare bankruptcy as soon as possible if the terminal value is high enough.

Nonlinear impulse capital injections problem with reinsurance control

Assume that two reinsurers participate in a reinsurance treaty, and both the insurer and two reinsurers adopt the variance premium principle. Based on the above jump risk model, we use the diffusion approximation risk process to model the assets of insurance company with reinsurance. To avoid bankruptcy, the insurance company will receive capital injections, we assume that each capital injection is not less than a certain constant d>0, and it also will incur some fixed transaction costs and proportional taxes, i.e., impulse injections with constraint. For the diffusion model, we study the minimum of the expected discounted nonlinear capital injection, using Hamilton-Jacobi-Bellman (HJB) method, and we give explicit solutions for the value function and the optimal control strategy. Finally, for the influence of parameters on the optimal results, we also give numerical analysis.

Saving Wall Street or Main Street

​We build a dynamic stochastic general equilibrium model, where the balance sheets of both banks and non-financial firms play a role in macro-financial linkages. We show that in equilibrium bank capital tends to be scarce, compared with firm capital. We study public funding of banks and firms in times of crisis. Government capital injections can be useful as a shock cushion, but they distort incentives. Small capital injections benefit banks more than firms but the relative benefit is declining in the injection size. Government should first recapitalize banks, and if resources are large enough, lend to firms too.

Corporate financial stability and change of capital availability as a result of a loss event

(ProQuest: ... denotes formulae omitted.)IntroductionFinancial stability of a company is one of essential factors which determine the availability of necessary corporate capital (funds). The regular activity of a company may be disrupted as a result of impact of various factors. A specific situation is the disruption of business activity of a company as a result of a loss event (fortuitous event). Loss events may lead to disruptions in particular areas of company activity, causing its financial instability. Restoration of the company activity to the initial state (prior to this event) requires capital injection, which should lead to improvement of a company's condition and restoration of financial stability.The company capital demand may be varied, not only due to the extent of incurred losses, but also depending on the adopted risk management strategy. By adopting an active attitude, (i.e. applying transfer of risk to an insurance institution and/or raising reserves for covering losses with own resources - equity capital), a company will not demonstrate an increased demand for capital because it may use compensation or reserves to cover losses. However, in the situation when a company adopts passive attitude towards risk (i.e. does not secure financial resources for covering losses related to a fortuitous event), it will be forced to obtain external funding in order to restore smooth functioning. Unfortunately, as a result of a loss event, parameters illustrating financial stability in basic areas, such as financial liquidity, assets management efficiency (productivity), debt management (solvency) and profitability are disturbed, which may limit or even withhold the availability of external capital.The main purpose of the study is to present the parameters of financial stability of a company, as well as to show the direction of their potential changes as a result of a loss event, taking into consideration their significance for ensuring access to external sources of capital necessary for covering the negative effects of an unforeseen event. The following thesis was adopted in the study: Financial stability of a company is a necessary condition for constant, undisturbed development, mainly by ensuring access to external capital in the case when it is necessary to cover the adverse effects of loss events.In connection with the adopted research assumptions, theoretical studies were conducted with the intention to solve the research problem that includes several elements: (1) definition of financial stability from the microeconomic perspective, (2) identification of company financial stability parameters, (3) indication of the potential changes of such parameters as a result of a loss event with regard to availability of external capital for covering the arising losses. Empirical justification of the presented thesis was based on the simulation analysis.The study consists of six sections. The second section defines financial stability from the microeconomic perspective, indicating the basic parameters determining corporate financial stability. The third section presents the problem of corporate financial stability in respect of a change in capital demand as a result of a loss event. The variability of financial stability parameters with reference to covering the negative effects of a loss event is presented in the fourth section. The fifth section contains the results of simulation analysis performed in order to indicate potential changes of parameters of corporate financial stability as a result of a loss event, taking into consideration their consequences for the availability of external capital. The conclusions of the conducted theoretical studies and empirical research is included in the sixth section.1. Corporate financial stability and its defining parametersThe notion of financial stability appears in literature mainly in the macroeconomic context. It is regarded as a condition of proper functioning of the economic system of a country aiming at economic growth [Wojtyna 1995, p. …

A Political Menace or Commercial Opportunity? Chinese Sovereign Wealth Fundss Investments in the European Union

With an estimated total of US $1.2 trillion under management, the two top Chinese sovereign wealth funds (SWFs) are a force to be reckoned with globally. Thus far, their investment exposure to European assets (an average of US$4.0 billion annually in 2009-2013) has been insignificant and has not exhibited deliberate overemphasis on industries, activities or individual targets deemed particularly vulnerable from the socioeconomic or political perspective. Furthermore, country variations in the distribution of Chinese SWF investments across Europe lay bare more of a reflection on host country openness and local capital market competitiveness than a proactive bias on the part of the SWFs to under- or overweight particular economies. These findings, however soothing in the context of hinese SWF investment in the EU, do not obviate the need for a coordinated pan-EU strategy aimed at upgrading the transparency of inward investment by all SWFs (including Chinese) and actionable policy measures to suspend or repel investments whose motifs are unclear and might be detrimental socioeconomically and politically. On the other hand, the EU needs to work hard on improving its investment climate to attract more Chinese investment (also in the form of SWF capital injections). This study comes up with a compendium of potential steps that the EU might contemplate to militate against harmful practises adopted by individual SWFs and to promote general SWF transparency. The paper draws on empirical transaction statistics recorded under the Sovereign Wealth Fund Transaction Database reconciled with those of the SWF Center Transaction Database.

Government capital injection, credit risk transfer, and bank performance during a financial crisis

This paper analyzes the interactions between government capital injection and credit risk transfer (CRT) with total return swaps including its impact on lending behavior and default risk of a bank in distress. When the bank acts as a beneficiary in CRT, an increase in the CRT transaction increases the optimal bank interest margin and decreases the default risk in the bank's equity return. When the bank acts as a guarantor, CRT is found to increase the bank interest margin and default risk in a more sensitive way, compared to a situation where government capital injection is increased. Government capital injection is found to increase the bank interest margin and reduce default risk in a more sensitive way, compared to a situation where CRT is increased regardless of whether the bank is a protection buyer or seller. This promotes the intension of government capital injection with CRT to strengthen the profitability and safety for the distressed bank.

An econometric evaluation of bank recapitalization programs with bank- and loan-level data

Public capital injections into the banking system are a comprehensive policy program aimed at reducing the financial risks faced by capital-injected banks, thereby stimulating their lending and profitability. This paper evaluates empirically Japan’s two large-scale capital injections in 1998 and 1999. We begin by extracting the treatment effects of the public injections from bank-level panel data. Using a difference-in-difference estimator in two-way fixed-effects regression models, we find that the public injections significantly reduced the financial risks faced by the capital-injected banks but did not stimulate their lending or profitability. Next, we investigate what factors impeded bank lending after the public injections using a matched sample of Japanese banks and their borrowers. By employing three-way fixed-effects regression models corresponding to the matched sample, we provide evidence that the deterioration of borrowers’ creditworthiness inhibited not only the injected banks but also the noninjected banks from lending more.

Asymptotic behavior of the processes describing some insurance models

The aim of the article is to establish the optimal control of applied stochastic models under incomplete information. To this end, a three-step algorithm for construction of so-called empirical asymptotically optimal policies is proposed. For illustration, we treat two input–output models arising in various domains of applied probability such as insurance, inventory, and queueing theory. Both models are considered in the framework of cost approach. The first one describes the insurance company using assets selling and bank loans. The second one treats the capital injections and reinsurance. Numerical results are also provided.

Effects of government capital injection on bank and bank-dependent borrower

We examine the impacts on bank interest margin, bank default risk, and bank-dependent borrower default risk from changes in the bailout program of government capital injections. This paper focuses on the capped credit risk, the risk of default related to borrower health states. We show that government capital injection helps to reduce default risk for the bank, but indirectly increases the default risk for the borrowing firm. Government capital injection is more likely to produce greater safety for the bank when the borrowing firm is in a distressed situation (e.g., a high-risk and low-return one). The capital effect on bank safety is underestimated when the capped credit risk is ignored. We conclude that a government capital injection program stabilizes the bank, but deteriorates the borrowing firm.

State-Aid, Stability and Competition in European Banking

What is the relationship between bank fragility and competition during a period of market turmoil? Does market power in European banking involve extra-gains after discounting for the cost of government intervention? We answer these questions in the context of Eurozone banking over 2005-2012 and show that greater market power increases bank stability implying aggregate extra-gains of 57% of EU12 gross domestic product for the banking sector after discounting for the costs associated with government intervention. The negative influence of competition on bank stability is non-monotonic and reverses for lower degrees of competition. Capital injections, guarantees and asset relief measures elicit greater bank soundness.

Does the G-20's Regulatory Agenda for Banks Affect the Market's Perception of Bank's Risk?

Using a sample of international listed banks from the United States, Europe, Japan and China, our paper analyzes the effect on risk of some of the most relevant new elements of the prudential regulatory framework following the Financial Crisis of 2007-2008. Our analysis also takes into consideration governments' financial support received by banks in crisis. We use the realized volatility of banks' stock returns as a measure of the market’s perception of banks' overall risk. In general we find that regulators' approach to safety and soundness seems consistent with the ex post market perception of banks' overall risks. Regulation aimed at reducing banks' leverage is consistent with prudential regulators' overall objective of limiting banks' idiosyncratic risks. The evidence is mixed regarding regulation aimed at imposing limits on securities trading (e.g. proprietary trading). Public support of banks is consistent with preserving financial stability; however, government capitalization of individual banks enhances risk perception since the market recognizes the capital injection as a revelation of partially unknown problems penalizing the bank.

Institutional Synergies in Customary Land Markets—Selected Case Studies of Large-Scale Land Acquisitions (LSLAs) in Ghana

Synergies among land institutions and institutional changes impact on land markets and in guaranteeing agro-based employment, capital injection, local economic development and infrastructural improvement. Increasingly, these institutions have come under pressure and there are concerns about their functional capacities and implications on land markets. This paper discusses institutional synergies and its impacts on customary land markets under large-scale land acquisitions for agro-investments in Ghana. From the study, it was identified that the government of Ghana has maintained a non-interfering stance in customary land markets so as to protect the sanctity and independence of customary land institutions. Also, land transactions were found characterised by lack of transparency, information sharing, participation and accountability. For an efficient and effective management of LSLAs in Ghana, there is the need for a functioning institutional collaboration and one-stop-shop approach to streamline the apparent complex processes of acquiring agricultural land. The roles of customary custodians such as chiefs and Tendaamba should be critically reviewed and re-aligned according to local customs to make the institutions more accountable, consultative and transparent, while curtailing their enormous powers in land administration.

Optimal dividend and capital injection problem with a random time horizon and a ruin penalty in the dual model

In the dual risk model, we consider the optimal dividend and capital injection problem, which involves a random time horizon and a ruin penalty. Both fixed and proportional costs from the transactions of capital injection are considered. The objective is to maximize the total value of the expected discounted dividends, and the penalized discounted both capital injections and ruin penalty during the horizon, which is described by the minimum of the time of ruin and an exponential random variable. The explicit solutions for optimal strategy and value function are obtained, when the income jumps follow a hyper-exponential distribution. Besides, some numerical examples are presented to illustrate our results.