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Book
Government Guarantees, Transparency, and Bank Risk-Taking
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Year: 2017 Publisher: Washington, D.C. : The World Bank,

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Abstract

This paper presents a model of bank risk taking and government guarantees. Levered banks take excessive risk, as their actions are not fully priced at the margin by debt holders. The impact of government guarantees on bank risk taking depends critically on the portion of bank investors that can observe bank behavior and hence price debt at the margin. Greater guarantees increase risk taking (moral hazard) when informed investors hold a sufficiently large fraction of liabilities. Otherwise, greater guarantees reduce risk taking by increasing the profits of the bank (franchise value effect). The results extend to the case in which information disclosure, and thus the portion of informed investors, is endogenous but costly. The model also shows that when bank capital is endogenous, public guarantees lead unequivocally to an increase in bank leverage and an associated increase in risk taking. The analysis points to a complex relationship between prudential policy and the institutional framework governing bank resolution and bailouts.


Book
Claim Models: Granular Forms and Machine Learning Forms
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ISBN: 303928665X 3039286641 Year: 2020 Publisher: MDPI - Multidisciplinary Digital Publishing Institute

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This collection of articles addresses the most modern forms of loss reserving methodology: granular models and machine learning models. New methodologies come with questions about their applicability. These questions are discussed in one article, which focuses on the relative merits of granular and machine learning models. Others illustrate applications with real-world data. The examples include neural networks, which, though well known in some disciplines, have previously been limited in the actuarial literature. This volume expands on that literature, with specific attention to their application to loss reserving. For example, one of the articles introduces the application of neural networks of the gated recurrent unit form to the actuarial literature, whereas another uses a penalized neural network. Neural networks are not the only form of machine learning, and two other papers outline applications of gradient boosting and regression trees respectively. Both articles construct loss reserves at the individual claim level so that these models resemble granular models. One of these articles provides a practical application of the model to claim watching, the action of monitoring claim development and anticipating major features. Such watching can be used as an early warning system or for other administrative purposes. Overall, this volume is an extremely useful addition to the libraries of those working at the loss reserving frontier.

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