Category: Science News

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Dutch Banks post-2008: Substantial increase in the equity capital is key to bank stability

In the aftermath of the global financial crisis of 2007-2008 and the following studies and comments in literature and the financial press, a study from a group of leading Dutch economists, published in June 2018, is commented by Prof.dr. Piet Duffhues, Tilburg University, the Netherlands.

The main conclusion of the study group was that an increase in the equity capital for Dutch banks should be realised. This proposal was based on an international comparison of bank balance sheets  of leading countries. It means that commercial banks would be required to keep a greater difference between the values of their assets and their liabilities.

In his paper, recently published in the open-access journal Monthly magazine for Accountancy and Business Administration (MAB), Duffhues agrees that if realised, the recommendation could not only bring Dutch banks back on their feet, but also increase their future solvency: the ability to pay their debts as they fall due. Thus, banks would have greater capacity to cover their future losses if necessary, and would manage risks in a far more efficient way.

Duffhues argues that despite scientists, financial journalists and politicians having continuously analysed and discussed the causes of the most devastating financial crisis since the Great Depression in the preceding century, little attention has been paid to the financial structure of commercial banks themselves.

Not only were Dutch banks not accommodating the international equity ratios, but, according to Duffhues, they were not compliant with the Dutch Corporate Governance Code 2016 in terms of external risk management, either. For a long time, they were keeping to a very low equity capital – only holding 3% of their total balance sheet amount. With their debt possibly reaching 97%, these 3% losses were already enough to lead to a serious lack of trust.

The 3% requirement had been imposed by national and international regulators in earlier decades. At that time, such strategy was considered reasonable by bank management and regulators. However, the financial crisis of 2008 turned out to be too intense to avoid the necessity of government action to rescue the banks from default. Naturally, their behaviour resulted in a very low solvency of the banks.

“The behaviour of banks at that time can be seen as contributing to the systemic risk of the economy,” explains Duffhues.

The author goes even much further than the study group, whose study he references. He is convinced that a substantial increase in the equity capital of up to 25% for banks will not only secure their own survival, but will also bring a number of undoubtedly positive developments for the society as a whole, including more trust from citizens and firms, less need for government interventions, and avoidance of financial cycle collapses. If banks have high enough equity ratios, economic recessions will not result in finance stops for consumers and producers in the economy. Bank solvency ratios should reflect the banks’ responsibility for the welfare and sustainable development of the society.

Original source:

Duffhues P (2018) De lessen van de crisis van 2008 in terugblik. Maandblad voor Accountancy en Bedrijfseconomie (MAB) 92(9/10): 277-282. https://doi.org/10.5117/mab.92.29016

 

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Monthly magazine for Accountancy and Business Administration (MAB) is one of the journals hosted on ARPHA through the platform’s white-label publishing solution.

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New promising compound against heart rhythm disorders and clogged arteries

The pharmacological agent outperforms current drugs in most of cases, show multiple experiments

A new pharmacological agent demonstrates promising results for the prevention of a wide range of heart rhythm disorders, including both cardiac and brain injury-induced arrhythmias. Furthermore, the compound (SS-68) demonstrates significant activity in conditions of reduced blood flow to the heart caused by obstructed arteries.

The study, conducted by a research team led by Dr Saida Bogus of the Kuban State Medical University in Russia, is published in the open-access journal Research Results in Pharmacology.

Each year, more than 17 million people from around the globe (mostly Europe and the USA) die of cardiovascular diseases and related complications, according to the World Health Organization. In Russia, about 3 out of 1,000 people suffer from the most common and malignant heart rhythm disorder: atrial fibrillation (AF), where the count is expected to at least double in the next 30 years. While sometimes lacking symptoms, atrial fibrillation could generally be recognised by a racing, irregular heartbeat, dizziness, fatigue, shortness of breath and chest pain, thereby largely compromising the quality of one’s life. The disorder could also lead to various complications, including dementia, stroke and heart failure.

Currently, the drugs administered to AF patients have major deficiencies, including narrow therapeutic windows, which means that even minimal imprecision in the dosage could result in unacceptable toxicity. Hence, patients need to be closely monitored and have their doses adjusted on a regular basis.

In their study, the team turned to the aminoindole derivatives to look for an alternative compound. This chemical group has already shown a significant potential in terms of cardio-pharmacological activity.

Having tested the SS-68 compound on multiple occasions in different animals, the researchers report that it has a pronounced antiarrhythmic effect and is able to bring the electrical activity of the heart back to normal and, in most cases, outperforming the reference drugs used in clinical practice: amiodarone, lidocaine, aymaline, ethacizine, etmozine and quinidine anaprilin.

Further, in brain injury-induced arrhythmias, the compound was found to reduce the episodes of epilepsy. It was also observed to have a positive effect in clogged blood vessels where it is reported to have successfully increased the coronary blood flow. In addition, the compound managed to decrease the area of necrosis in the heart tissue caused by a heart attack.

“To date, there have been significant achievements of Russian and foreign pharmacologists, chemists and clinicians in creating and introducing into the practical medicine a number of antiarrhythmic drugs different by their chemical structure, nature, spectrum, activity and mechanism of action; nevertheless, one of the most important tasks of modern pharmacology is searching for and developing new highly active substances of the corresponding action,” explain the scientists.

“Special attention should be paid to an in-depth study of the molecular mechanisms of action of this compound,” they conclude.

A paper looking further into the molecular mechanisms of the antiarrhythmic action of SS-68 prepared by the same research team is currently in press with Research Results in Pharmacology.

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Original source:

Bogus SK, Galenko-Yaroshevsky PA, Suzdalev KF, Sukoyan GV, Abushkevich VG (2018) 2-phenyl-1-(3-pyrrolidin-1-il-propyl)-1 H-indole hydrochloride (SS-68): Antiarrhythmic and cardioprotective activity and its molecular mechanisms of action (Part I). Research Results in Pharmacology 4(2): 133-150. https://doi.org/10.3897/rrpharmacology.4.2859

 

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Research Results in Pharmacology is one of the journals hosted on ARPHA through the platform’s white-label publishing solution.

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CO2 emissions in Russia go up in line with economic growth up until a certain point

This is the first detailed study to test whether the environmental Kuznets curve hypothesis holds true for the Russian Federation

Pollution in Russia increases along with economic growth, but only until it reaches a certain threshold, from where it starts to decrease, demonstrates a recent study conducted by Prof. Natalya Ketenci, Yeditepe University, Turkey.

The validity of the phenomenon, recognized as the environmental Kuznets curve, demonstrates a promising progress for the environmental policies and practices in the Russian Federation. Published in the open-access Russian Journal of Economics, the study also seeks to identify the relationships and causality between pollution, quantified by carbon dioxide (CO2) emissions, and the main factors which affect them.

To do so, the author employs annual data on energy consumption, real income, international trade, level of education and level of urbanization for the period 1991-2016, available from the World Bank’s World Development Indicators database. As a result, the research paper provides recommendations to policy makers in Russia responsible for the environmental quality on national level.

According to the data, Russia remains the fourth largest contributor in terms of CO2 emissions in the world after China, the USA and India in terms of total kilotons, but is ahead of the US when Gross domestic product (GDP) is taken into account. While the US contributes with 0.33 kg of CO2 emissions per 2010 dollars of GDP, Russia accounts for 0.99 kg. Furthermore, despite the global tendency of decreasing annual amounts of CO2 emissions, Russia continues to increase its own.

Interestingly, while Russia has increased its overall CO2 emissions by 14% since 1998 (8% since 2009), its quantity turns out to have actually declined by 45.6% (7.3% since 2009) when the GDP is considered. In agreement with the environmental Kuznets curve hypothesis, this is due to the gradual deployment of more environmentally-friendly equipment in a growing economy.

When studying the key factors for pollution, Prof. Natalya Ketenci concludes that energy consumption, real income, education and urbanization levels are all significant determinants, and open trade has no impact.

In conclusion, the researcher suggests that policy-makers in Russia need to continue with the implementation of policies meant to sustain economic development, thereby favoring cleaner technologies.

Efforts in raising environmental awareness among the population is also a priority. Interestingly, while education in Russia is linked to better access to advanced, yet energy-intensive technology, it is through education that people can be motivated to improve environmental quality and thus persuaded into practices such as recycling and giving up on non-renewable products.

Quite an ambiguous effect on environmental pollution is found in the case of urbanization as well. While generally linked to increased CO2 emissions as a result of greater and denser population, improved recycling organization and hygiene provisions in urban areas work in favor of environmental quality. Therefore, the author recommends that the focus for urban areas needs to be placed on maintaining current policies and decreasing energy intensity, while in rural areas, it is important to implement new efficient environmental policies.

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Original source:

Ketenci N (2018) The environmental Kuznets curve in the case of Russia. Russian Journal of Economics 4(3): 249-265. https://doi.org/10.3897/j.ruje.4.28482

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Russian Journal of Economics is one of the journals hosted on ARPHA through the platform’s white-label publishing solution.

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Physical and human capital rather than military spending key for economic growth in Russia

Calculations based on government expenditure data gathered between 2002 and 2016 suggest a budget maneuver could increase Russia’s GDP with 25-35% in a single generation

Investment in education, healthcare, sports, road infrastructure and transportation, rather than national defense and, to a lesser extent, national security and law enforcement, is what drives economic growth rates and GDP level upwards in Russia, suggests a recent analysis of government expenditure data gathered between 2002 and 2016.

The empirical study, conducted by Dr Alexey Kudrin of St. Petersburg State University, Gaidar Institute for Economic Policy and the Accounts Chamber of the Russian Federation, and Dr Alexander Knobel, Gaidar Institute for Economic Policy and the Russian Presidential Academy of National Economy and Public Administration, was published in the open-access journal Russian Journal of Economics.

In their analysis, the economists apply the Structural vector autoregression (SVAR) methodology: a modification to the traditional Vector autoregression (VAR), which allows for identification of interdependencies between data series coming from various points in time, while allowing for variables. Thus, the researchers analyzed the efficiency of Russia’s government spending and how the distribution of resources impacts the national economic development, with the Gross domestic product (GDP) set as a structural variable.

In particular, Drs Kudrin and Knobel looked into expenditure on national security and law enforcement, national defense, education, healthcare and sports, road infrastructure in order to estimate how resource distribution in these areas affect national economic growth and GDP. They used data from the Russian Federal State Statistics Service (Rosstat) for the period from 2002 to 2016, while also taking into account multiple international studies on the topic.

As a result, they found that government spending on “power” items such as national defense, national security and law enforcement (areas also recognised as non-productive expenditure), mostly translates to extensive consumption of resources. Meanwhile, investment in physical and human capital, including education, healthcare and sports, road infrastructure and transportation (productive expenditure) is associated with both short- and long-term economic growth.

The data from Rosstat confirm the researchers’ conclusions by demonstrating a drop in Russia’s economic growth rates in recent years, which corresponds to the shift in the general government budget spending towards “power” items. On the other hand, Drs Kudrin and Knobel present evidence that a maneuver in favor of human and physical capital is capable of increasing Russia’s GDP with 25-35% in a single generation (25-30 years).

The researchers conclude:

“Against the background of a deteriorating foreign economic situation, lowering budget spending may have a stabilizing effect, but, from a growth effect point of view, it is best to initially reduce non-productive expenditures while increasing or, at least, maintaining the current level of productive expenditures.”

“Of course, ensuring security against internal and external threats, including through funding ‘power’ items, is an essential condition for the state’s stable functioning and for maintaining social and economic stability. However, one should exercise prudence when determining the requisite amount of non-productive expenditures, realizing the cost to be paid by the society for this or that budget spending composition.”

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Original source:

Kudrin A, Knobel A (2018) Russian budget structure efficiency: Empirical study. Russian Journal of Economics 4(3): 197-214. https://doi.org/10.3897/j.ruje.4.30163

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Russian Journal of Economics is one of the journals hosted on ARPHA through the platform’s white-label publishing solution.