Temporary Credit Research Articles

Permanence and Liability: Legal Considerations on the Integration of Carbon Dioxide Removal into the EU Emissions Trading System

AbstractThis article examines how carbon dioxide (CO2) removal credits can be integrated into the European Union (EU) Emissions Trading System (ETS), focusing on questions of permanence and climate liability. It identifies challenges within the integration process and analyzes approaches from practice and literature to cultivate learning. These approaches apply different strategies to address the issue of permanence, including temporary credit issuance, granting credits once a certain number of carbon tonne-years have been accumulated, or issuing credits at the beginning of the project period and relying on liability instead. Drawing from the findings of this research, the article presents legal considerations that may inform a proposal for an EU legislative act on the integration of carbon removal credits into the EU ETS. It suggests that only credits issued for permanent CO2 removal should be integrated to ensure the environmental integrity of the system. Furthermore, the liability of the project operator should transfer to the Member State under certain conditions to make liability risks more predictable.

Credit access and housing insecurity: Evidence from winter utility shutoff protections

Fifty-six percent of urban renters face some level of housing insecurity. I explore the role of credit access, or lack thereof, as a contributing factor. To do so, I study a temporary line of credit extended to households in the form of protection from heat shutoffs during the winter. These protections allow households to delay winter energy payments without risk of losing their heat. I adopt a triple difference-in-differences (DDD) approach, leveraging variation in states’ shutoff protection dates and census tracts’ average energy burdens. I estimate that the temporary extension of credit reduces the eviction filing rate by 4% in census tracts with high energy burdens. I provide suggestive evidence that eviction filings do not spike after the temporary credit access ends, implying a net negative effect of temporary credit access on filings over the entire year. I further demonstrate that a 3% increase in rental payments explains the decline in eviction filings, which is consistent with access to credit allowing renters to smooth consumption.

Passive Franchise as an Innovation in the Development of Cooperative-Based Retail Networks

Background: Franchising is a choice in developing a business network. One of the rampant franchise businesses in Indonesia is the development of retail store networks. Unfortunately, the presence of modern store-based retail stores is feared to threaten local businesses in the area such as the case in Kulon Progo. TOMIRA is seen as the best solution that mediates the interests of the private sector as retail owners, cooperatives, and local governments with the main goal of improving community welfare. Aim: This paper aims to reveal TOMIRA policy problems that occur and explore innovations in management strategies needed in the form of passive franchises. Method: Through a qualitative approach, this paper is able to present the results and policy problems of multi-actors, namely the government, private sector, cooperatives, and SMEs. Findings: Passive franchising is seen as a form of mitigation of policy problems in TOMIRA because it is able to provide a delegation system for cooperatives and the merger process with a temporary credit fund facilitating cooperatives while having an impact on increasing profits for both cooperatives and SMEs. The success of passive franchise implementation depends on the role and involvement of local governments, retail policies themselves, human resources, and management.

An Efficient Threshold-Driven Aggregate-Label Learning Algorithm for Multimodal Information Processing

The aggregate-label learning paradigm tackles the long-standing temporary credit assignment (TCA) problem in neuroscience and machine learning, enabling spiking neural networks to learn multimodal sensory clues with delayed feedback signals. However, the existing aggregate-label learning algorithms only work for single spiking neurons, and with low learning efficiency, which limit their real-world applicability. To address these limitations, in this article, we first propose an efficient threshold-driven plasticity algorithm for spiking neurons, namely ETDP. It enables spiking neurons to generate the desired number of spikes that match the magnitude of delayed feedback signals and to learn useful multimodal sensory clues embedded within spontaneous spiking activities. Furthermore, we extend the ETDP algorithm to support multi-layer spiking neural networks (SNNs), which significantly improves the applicability of aggregate-label learning algorithms. We also validate the multi-layer ETDP learning algorithm in a multimodal computation framework for audio-visual pattern recognition. Experimental results on both synthetic and realistic datasets show significant improvements in the learning efficiency and model capacity over the existing aggregate-label learning algorithms. It, therefore, provides many opportunities for solving real-world multimodal pattern recognition tasks with spiking neural networks.

Money creation under full-reserve banking: a stock–flow consistent model

Abstract This paper presents a stock–flow consistent model of full-reserve banking. The paper investigates money creation through government spending in a full-reserve banking system. The results are contrasted against the cases in which government spending is increased under full-reserve banking without money creation and under endogenous money, that is, the current monetary system. It is found that output, employment and inflation evolve almost identically. In contrast to other cases, money creation in a full-reserve banking system leads to a permanent reduction in consolidated government debt. Monetary policy transmits effectively as an increase in central bank reserves translates into an almost equal increase in demand deposits. Furthermore, an unusually large change in the money supply induces only smooth and relatively small changes in interest rates. In addition, the paper compares three additional ways to create money. Money creation through tax cuts or citizen’s dividend generates roughly the same results as creating money through government spending. In contrast, money creation through quantitative easing affects only monetary aggregates and interest rates but not the real economy. Although in every money creation experiment banks are able to fully satisfy the demand for loans, temporary credit crunches can occur under full-reserve banking. The occurrence of credit crunches depends on changes in private behaviour and economic policy as well as safety margins adopted by banks.

A Theory of Market Design: The Split Market Paradigm.

The cost of systemic risk in the over-the-counter (OTC) derivatives market is described and estimated. Modern portfolio theory (MPT), applied to OTC derivatives, predicts this cost, which has been growing since 1970. This cost grew because Congress blocked MPT’s predicted market forces. Without Congressional intervention, derivatives dealers would either have held dramatically smaller portfolios or made OTC derivatives negotiable. We estimate the global market has reached an un-booked negative market value, the implied capital cost of derivatives’ credit risk, substantially in excess of $250 billion today. At the banking lobby’s behest, Congress serially altered the bankruptcy code, transferring derivatives’ implied credit risk from derivatives dealers to others. However, the burden of the transferred credit risk was not reassigned. Thus the risk is not accounted for and not supported by bank capital. Worse, since derivatives are credit-riskless for derivatives dealers, these dealers create more derivatives than if they bore the cost, creating systemic risk.This risk, and the resulting changes in bankruptcy code, are unnecessary. If the dealer community were to modify the structure of OTC derivative instruments, derivatives’ credit risk would be dramatically reduced. Without Congress’ intervention, this might have happened long ago.The article is organized as follows. The introduction summarizes the article. The second section describes how OTC derivatives create temporary excess credit risk. The third section describes government intervention in this market and the resulting permanent systemic risk. Section four estimates the current size of systemic risk. The final section concludes.

Econometric Analysis of Demand and Supply of Institutional Credit to Agriculture in Jammu and Kashmir

The study looked into the demand and supply of institutional credit to agriculture in Jammu & Kashmir. It was observed that the agricultural credit has increased in absolute terms since 1980’s but its share in total credit has gone down for 12.4 to 7.8% of total credit disbursed in the economy between 1980 and 2010. The results revealed wide disparity across regions with respect to the disbursement of direct credit to agriculture. Moreover, there is a huge gap in the financial requirement and supply of institutional credit to agriculture in the state. The estimates of regression analysis indicated that real farm prices, gross irrigated area, coverage of rural banks, loanable cash balances of commercial banks, state gross domestic product and agriculture domestic product were significant positive determinants of direct credit supply to agricultural sector. On the other hand higher level of permanent income, rural literacy, technology level and value of farm assets have contributed in the improvement of demand for institutional credit. While temporary income and cooperative agricultural credit appeared negative indicating that it supplement farmers’ financial requirement and in turn resulted in declining demand for institutional credit. Based upon the findings, the study put forth few policy suggestions.

Liquidity provision during the crisis of 1914: Private and public sources

Caught between the end of the National Banking Era and the beginning of the Federal Reserve System, the crisis of 1914 provides an example of a banking panic avoided. We investigate how this outcome was achieved by examining data on the issues of Aldrich-Vreeland emergency currency and clearing house loan certificates to New York City institutions that identify the borrower and the quantity requested for each type of temporary liquidity measure. The extensive provision of temporary credit to a wide array of financial intermediaries was, in our opinion, essential to the successful alleviation of financial distress in 1914. Empirical results indicate an important role for clearing house loan certificates that is distinct from the influence of Aldrich-Vreeland emergency currency issues.

Carbon Banks

Carbon sequestration is one of the options that can be used to reduce atmospheric carbon, but its use in an offset market is complicated by the temporary nature of sequestered carbon and the risks associated with carbon release and price. In this paper a carbon bank is proposed to handle these problems. The bank is both an aggregator and a risk bearer. Sink generators deposit their credits with the bank and are paid for maintaining their "savings" with the bank. The carbon bank is also the source where large-scale emitters can come and buy either a temporary or permanent credit and pay the bank in return for the credit and services provided. The advantages of the bank over alternative institutional designs include lower transaction costs, flexible carbon credits and price, and lower risk to risk-averse parties. The carbon bank could be an effective means to deal with many of the unresolved issues within the forthcoming Canadian offset system.

Temporary sequestration credits: an instrument for carbon bears

Temporary crediting of carbon storage is an instrument that allows entities with emissions reductions obligations to defer some obligations for a fixed period of time. This instrument provides a means of guaranteeing the environmental integrity of a carbon sequestration project. But because the user of the temporary credit takes on the liability of renewing it, or replacing it with a permanent credit, the temporary credit must sell at a discount compared to a permanent credit. We show that this discount depends on the expected change in price of a permanent credit. Temporary credits have value only if restrictions on carbon emissions are not expected to tighten substantially. The intuition is illustrated by assessing the value of a hypothetical temporary sulfur dioxide sequestration credit, using historical data on actual SO2 allowance prices.

Temporary sequestration credits: an instrument for carbon bears

Temporary crediting of carbon storage is a proposed instrument that allows entities with emissions reductions obligations to defer some obligations for a fixed period of time. This instrument provides a means of guaranteeing the environmental integrity of a carbon sequestration project. But because the user of the temporary credit takes on the liability of renewing it, or replacing it with a permanent credit, the temporary credit must sell at a discount compared with a permanent credit. The authors show that this discount depends on the expected change in price of a permanent credit. Temporary credits have value only if restrictions on carbon emissions are not expected to tighten substantially. The intuition is illustrated by assessing the value of a hypothetical temporary sulfur dioxide sequestration credit using historical data on actual sulfur dioxide allowance prices.

The credit risk components of a swap portfolio

AbstractThanks to the recent development of analytical pricing models for swaps with bilateral credit risk, a comprehensive analysis of the dimensions of default risk has become possible. Using the model developed by Hübner (2001) for IRS and CS, this article investigates the impact of structural and temporary credit risk changes on swap prices. It emphasizes that large variations in swap values and sensitivities may exist depending on the sources of credit risk differences between the counterparties. This phenomenon is stronger for CS because of the exchange of principal and an additional correlation risk that exhibits a nonnegligible impact on the contract value. The influence of a netting master agreement also can be analyzed for a wide range of initial contract values and netted notionals. The results confirm the hedging properties put forward by Duffie and Huang (1996) as a special case, but clearly show that they cannot be generalized to any netting pattern. Prevailing market conditions are shown to play a central role in the effectiveness of netting as a hedging device. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:93–115, 2004

Credit rationing and the adjustment of the loan rate: An empirical investigation

In this paper, models of credit rationing are analyzed using quarterly data on domestic bank loans of four countries. First, models of temporary (dynamic) credit rationing are considered. The price (interest rate) equation proposed by Bowden is estimated assuming equal and unequal adjustment speeds under excess demand and supply conditions. Second, the stability of the interest-rate equation is tested. We motivate this test by the fact that permanent (supply-side equilibrium) credit rationing implies instability of this regression relationship. Statistically significant credit-rationing effects are found for the countries considered, with the exception of the U.S.