Designing Bankers’ Pay: Using Contingent Capital to Reduce Risk-Shifting Incentives

Including contingent convertible bonds (coco) in the capital structure of a bank affects the sensitivity to risk of its equity-based compensation. Such risk-shifting incentives can be reduced if the coco bonds are well-designed. Similarly, we show that compensating executives with well-designed coco bonds can also reduce risk-shifting incentives. In practice, however, most coco bonds have characteristics that result in both stock and coco compensation having large sensitivities to changes in asset risk — equity-based compensation encourages executives to increase risk, coco compensation to reduce risk. We show that a pay package combining both stock and coco can practically eliminate risk-shifting incentives and that it can be implemented with a bank’s preexisting coco bonds.

How Do Bank Capital and Capital Buffer Affect Risk: Empirical Evidence from Large US Commercial Banks

This research aims to investigate the influence of bank capital, risk-based capital and bank capital buffers on the behaviour of bank risk-taking by applying GMM on the data of US commercial banks ranges from 2002 to 2018. The findings show that bank capital has a positive influence on total risk. However, risk-based capital and capital buffer have a negative impact on total risk. In addition, the results showed that the relationship between bank asset risk and bank capital, risk-based capital and a capital buffer is negative in pre, amid and post-crisis periods. The findings also reveal that the result of bank capital, risk-based capital and a capital buffer is not similar in case of well, adequately, under, significantly under, and critically undercapitalized banks. Our conclusions have numerous implications for policymakers and regulators in the banking sector.

A Hybrid Topside Structural Approach to the Management of Aging Fleet

The objective of this paper is to demonstrate the best practices of Topside Structural Integrity Management for an aging fleet of more than 200 platforms with about 60% of which has exceeded the design life. PETRONAS as the operator, has established a Topside Structural Integrity Management (SIM) strategy to demonstrate fitness of the offshore topside structures through a hybrid philosophy of time-based inspection with risk-based maintenance, which is in compliance to API RP2SIM (2014) inspection requirements. This paper shares the data management, methodology, challenges and value creation of this strategy. The SIM process adopted in this work is in compliance with industry standards API RP2SIM, focusing on Data-Evaluation-Strategy-Program processes. The operator HSE Risk Matrix is adopted in risk ranking of the topside structures. The main elements considered in developing the risk ranking of the topside structures are the design and assessment compliance, inspection compliance and maintenance compliance. Effective methodology to register asset and inspection data capture was developed to expedite the readiness of Topside SIM for a large aging fleet. The Topside SIM is being codified in the operator web-based tool, Structural Integrity Compliance System (SICS). Identifying major hazards for topside structures were primarily achieved via data trending post implementation of Topside SIM. It was then concluded that metal loss as the major threat. Further study on effect of metal loss provides a strong basis to move from time-based maintenance towards risk-based maintenance. Risk ranking of the assets allow the operator to prioritize resources while managing the risk within ALARP level. Current technologies such as drone and mobile inspection tools are deployed to expedite inspection findings and reporting processes. The data from the mobile inspection tool is directly fed into the web based SICS to allow reclassification of asset risk and anomalies management.

Impact of ambient sound on risk perception in humans: neuroeconomic investigations

Research in the field of multisensory perception shows that what we hear can influence what we see in a wide range of perceptual tasks. It is however unknown whether this extends to the visual perception of risk, despite the importance of the question in many applied domains where properly assessing risk is crucial, starting with financial trading. To fill this knowledge gap, we ran interviews with professional traders and conducted three laboratory studies using judgments of financial asset risk as a testbed. We provide evidence that the presence of ambient sound impacts risk perception, possibly due to the combination of facilitatory and synesthetic effects of general relevance to the perception of risk in many species as well as humans. We discuss the implications of our findings for various applied domains (e.g., financial, medical, and military decision-making), and raise new questions for future research.

Earthquake Early Warning Systems as an Asset Risk Management Tool

Losses due to strong seismic events can amount to millions or billions of US dollars and can affect regions for large periods of time, even severely undermining the economy. Earthquake early warning systems have proven to be helpful tools to mitigate the social and economic impact on communities and businesses. Recent case studies are briefly described, followed by examples of proactive measures for assets, infrastructure, citizens education and empowerment, complementary to earthquake early warning systems.

Analysis of asset risk and household Financial Asset Allocation structure—Empirical analysis from a nonlinear model

Chinese households now have a good understanding of finance and their asset allocation choices are increasingly skewed towards financial products. At present, most domestic and foreign researches on the structure and choice of household asset allocation mainly analyze the influence of residents’ characteristics or financial literacy on household asset allocation, while few researches on the internal relationship between household risk, asset structure and allocation choice. Based on CHFS data and the theory of asset investment behavior, this paper systematically analyzes and risk assets and family financial asset allocation structure of mutual influence and role, an empirical analysis of the influencing factors of residents in our country family financial asset allocation structure by using Probit model and Tobit model, pay attention to risk assets, family income and other factors, a deeper understanding of family financial asset investment circumstances.