What To Do about Bilateral Credit Limits in the LVTS When a Closure Is Anticipated: Risk versus Liquidity Sharing among LVTS Participants
The authors examine the effect of a trade-off between shared credit risk and liquidity efficiency, among participants in Tranche 2 of the Large Value Transfer System (LVTS T2), on their decisions to leave open, or close, their bilateral credit limits (BCLs) to a participant at risk of imminent closure. The authors' analysis considers a network of three banks, in a settlement system similar to the LVTS T2. Although it is widely believed that closure of one bank is imminent, the exact timing of the closure - during or after the settlement cycle - is uncertain. The other two banks face an "open or close" choice regarding their BCLs to the problem participant. Based on the expected net payoff of each choice, which includes the value of network externalities, the analysis shows that, when the expected credit loss is sufficiently low, an open-BCL pure-strategy Nash equilibrium can exist and can be Pareto efficient. This result dispels the generality of the frequent assertion that participants in the LVTS T2 will close their BCLs to a participant that is subject to imminent closure.
Analyzing Default Risk and Liquidity Demand in Canada during the Financial Crisis ∗
We use detailed data from the Canadian banking sector to evaluate the impact of the 2007 financial crisis. We document that unlike the Euro zone, which experienced a sharp and persistent increase in demand for liquidity supplied by the central bank immediately after the outbreak of the subprime crisis in the summer of 2007, the Canadian banking system experienced distress only for a limited time, for two months immediately following the collapse of Lehman Brothers in September 2008, and settled back to its usual state thereafter. We further use these data to evaluate bank-specific riskiness. We classify the risk measures based on whether the data necessary for their construction are publicly available, are available only to participants of the Large Value Transfer System (LVTS), which is a payment settlement mechanism specific to Canada, or are available only to the central bank. We show that the publicly available risk measures based on prices of credit default swap (CDS) contracts, while indicative of initial problems of the financial system as a whole, do not seem to correspond to the cross-sectional heterogeneity in the behavior banks face from their counterparties in the short-term lending markets. Participation, strategies in and reliance on special liquidity-supplying tools provided by the central bank thus seem to potentially be important additional indicators of distress.
The Gospel and the land;: Early Christianity and Jewish territorial doctrine,
Ostensibly Davies' patient study of the concepton of the "land" (Israel, Jerusalem) in early Christianity is an essay in Biblical theology, but he also wishes to raise serious questions about Christian understanding (or misunderstanding) of Judaism. "Christians have usually understood Judaism in too theological, and therefore, too intellectual terms. And they have also looked at their own foundation document, the New Testament, in the same way. In their proper concern to unravel theological developments and subtleties in primitive Christianity, they have neglfected to search for evidences of an encounter between it and the realia of Judaism and for any possible resolutions of such an tencounter. In particular, they have failed to inquire after the place of the land in the thought and lives of early Christians" (p. 161). Davies observes, for example, that bible dictionaries often have no references whatsoever to "land" and those that do allot it but a few pages. Even in Old Testament scholarship, where the land is of central significance in the documents themselves, it has been neglected. His work is an attempt to provide a context of Jewish thinking from early Israelite writings up to the Talmud in which to place the Christian materials. The bulk of the book is an account of the historical and theological process by which early Christianity gave a "spiritual" interpretation of traditional Jewish views of the land. Read against the Jewish background, the radical spiritualizing of the tradition is striking. Yet Davies also shows that Jewish attitudes were not monolithic in the first century, that notions of a preexistent, heavenly or eschatological Jerusalem were present, and that some Jews considered the viability of Judaism apart from the land. At some point however what could be entertained as an abstraction in Judaism, when it was made concrete in the life of the Christian movement, could not be tolerated. The conflict was heightened, of course, by the destruction of Jerusalem and the continued existence of Christianity as a movement increasingly receptive to non-Jews. Christianity, however, while rejecting the link between the land and religion, did create a new sense of "holy space" by hallowing the places where Christ had been, a development which would find fullest expression some several centuries later. As a result of the Holocaust and the establishment of the modern state of Israel Christians are faced with a whole new series of issues which have lain dormant since the destruction of Jerusalem in A.D. 70. Davies' work must be read against this backdrop to appreciate its significance. It is as much a book about modern Christian thinking as it is about the past, as many of his citations and his several appendices of speeches at Jewish-Christian conferences show. To some it may appear that he has sided too closely with certain strands of Judaism and allowed this to color his way of handling the pre-Christian and pre-Rabbinic material, but such criticism is carping. Much of the material here is gathered together in this fashion for the first time, and he has successfully shown that a major preoccupation of ancient Judaism is missing in contemporary biblical scholarship. Further, he has given us a moving yet scholarly statement of the pathos of the modern Christian who cares about Christ and Israel and who tries to understand Israel while loving Christ.