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describes Offroad Capital, a pioneer in online private equity placements

This 117 page .pdf paper addresses the causes, consequences and implications of cross-border consolidation of financial institutions. It finds that, on average, domestic banks have higher profit efficiencies than foreign banks (with the exception of U.S. banks which operate efficiently at home and abroad). The results do not preclude successful international expansion but they do suggest limits to global consolidation.

When a credit card company changes interest rates or increases the credit limit of its consumers, how do these consumers respond? The answers are far from predictable, as David B. Gross of the University of Chicago and Wharton's Nicholas S. Souleles have found out. In a paper titled, "Consumer Response to Changes in Credit Supply: Evidence from Credit Card Data," Gross and Souleles examine the effects of changes in the credit limits and interest rates. Their study found that people starting at near their credit limit respond most sharply to changes in credit limits.

In the last two months alone, four European financial institutions have announced their interest in acquiring U.S. investment banks and brokerage firms. Why the sudden activity? And what are the chances these acquisitions will succeed? Two Wharton finance professors look at the companies involved and analyze the dynamics of the global underwriting business.

Quite an impressive amount of recent academic research focuses on the idea that financial factors may cause or reinforce real fluctuations. In these models, it is typically a monetary policy shock that serves to lower the value of an asset which is used to secure a firm's borrowing, thereby generating broad credit channel effects of monetary transmission. We empirically investigate the impact of corporate risk management strategies on this specific transmission channel by using the seminal paper of Gertler and Gilchrist (1994) as a benchmark. A potentially important impact of corporate hedging is suggested by corporate finance models that generate hedge incentives by introducing asymmetric information into the credit markets, the assumption at the very heart of the available theories of a broad credit channel. The advent of liquid US interest rate derivatives markets in the mid-1970s should, therefore, serve as something like a turning point in the history of US monetary transmission. Credit channel effects should have been in operation prior to the introduction of these markets, while any such effect should have tended to vanish afterwards. In addition, we should be able to detect marked differences in the behaviour of small and large firms up to the 1970s in contrast to a broadly identical behaviour on the part of these firms in the period thereafter.

This article first reviews methods of foreign exchange intervention and then presents evidence—focusing on survey results—on the mechanics of such intervention. Types of intervention, instruments, timing, amounts, motivation, secrecy and perceptions of efficacy are discussed.

ABSTRACT: This article examines empirically the dynamic relationship between two key US money market interest rates - the federal funds rate and the 3-month Treasury bill rate. Using daily data over the period 1974-1999, we show that a long-run no-arbitrage relationship exists between these two rates. This relationship is shown to be remarkably stable across monetary policy regimes of interest rate and monetary aggregate targeting. Employing vector equilibrium correction models which allow for both asymmetric and non-linear dynamics, we find that most of the adjustment towards the no-arbitrage long-run equilibrium occurs through the federal funds rates. The results appear to suggest that, contrary to conventional wisdom, it is the Treasury bill rate, rather that federal funds rate, that 'anchors' the short end of the term structure.

Article discusses the concept of business development corporations (BDCs) and highlights some of the players.

David Komansky, chairman and CEO of Merrill Lynch & Co., finds it ironic that the head of a financial services firm gets asked to lecture on the new economy these days. "Our company has been called 'a relic from the Cro-Magnon era'," he said during a visit to Wharton. "But because of the patterns that started in the last year, some of the virtues of the old economy companies have now become more accepted." Komansky offers in this article five paradoxes of the new economy:
1. scale is just as important as innovation
2. in a world of endless choices, brand matters
3. in a world filled with information, relationships are critical
4. age doesn't matter, but seizing opportunity does
5. in the new economy, the most satisfying job experiences can be found in traditional workplaces

Although digital cash was a compelling concept, companies went out of business left and right trying to make it work -- until PayPal came along. PayPal's simplified idea of e-cash didn't create a separate currency (instead sticking with the good old dollar), and signing up didn't require any paperwork or credit checks. The service expanded exponentially when eBay users began to adopt it as a payment method of choice. However, the same facts that make PayPal easy to use and sign up for have a flip side.

Article discusses the reset security, also known as the "death-spiral convert" and sometimes as a "toxic" (privately held preferred stock or bonds that can be exchanged for shares of common stock. An investor will offer a company cash in exchange for a percentage of the company, but with a catch: The investor wants a guarantee that the investment's value won't fall (or won't fall much). If the stock does fall, the investor gets more shares - and a bigger stake in the company.)

This article describes the author's experience with the development of the first Yugoslav Internet payment processing system. The system's architecture is very similar to the Three Domain (3D) model that started to emerge later. This success story is worthwhile sharing with a wider audience.

Why are so many on-line banking ventures-start-ups and incumbents alike-foundering? Despite the presence of more than 2,500 Western European banking sites on the World Wide Web, only eight million people in the region use the channel to either check their accounts or make transactions. We studied 65 leading banks in ten European countries to determine why customers are adopting on-line banking at different rates.

The take-away
Our study confirmed that when it comes to bringing customers on-line, "push" factors (the efforts that banks make to attract customers to on-line operations) are almost as important as "pull" factors (the demand from Internet-savvy customers for electronic services).

Many Wall Street watchers believe that the low-cost electronic trading of securities will destroy market making and brokerage. But this doom-and-gloom prognosis results from a fundamental misunderstanding of the way technology is changing the business. Companies that use the technology right can greatly increase the volume of the trades they process--and boost margins as well.

As the once-fragmented banking industry continues the consolidation that began a decade and a half ago, what has been the impact of bank mergers on consumers? Are they finding higher fees and fewer free services, or lower interest rates and more service options? Some experts offer their opinions.

The market for lending equities is obscure and privately negotiated, but the benefits are substantial, according to Wharton finance professors Christopher Geczy and David Musto and Wharton doctoral student Adam Reed. In the article below, reprinted from the Financial Times' Mastering Investment series, the three authors discuss short-selling in equity lending, short selling of IPO stocks and the legal issues of shorting.

20 years pass and one becomes two: that is, over time, the once-unified financial services industry split into two broad sectors. One is wholesale finance, where clients who have direct access to capital markets may receive financial services. The second is retail and regional finance, where clients do not have direct access but still receive services. Professors Ingo Walter and Roy Smith compare and contrast these two sectors, illustrating the impetus for each respective group members' actions.

Success will come to financial services companies that have the courage to dismantle outdated business paradigms and to successfully leverage the industry's new competitive dynamics. The need for new models to generate profitable growth is clear. This demands a strategy for building customer and shareholder value that takes into account the critical variables-like customer behavior and technology-that shape today's competitive environment.

Developing a local-currency bond market tops the agenda of many emerging economies intent on financial reform. The reasons are clear: a deep and liquid bond market provides an alternative to bank credit and thus helps to create a more competitive financial sector and to lower the cost of borrowing. And bonds tend to have longer maturities than bank loans in these economies, thereby reducing the need for offshore borrowing, along with its attendant currency risk. But how should governments set about developing a bond market where none exists? Thailand, which has built one quite rapidly, points the way.

International bank regulators are currently drafting a new version of the historic 1988 Basel Capital Accord, which set minimum capital requirements for banks around the world. Far from being an esoteric banking issue, the new rules will have far-reaching implications for banks and borrowers alike. As currently written, however, proposals for the new accord threaten to put an undue and unintended capital burden on banks and won't encourage them to pursue more sophisticated credit-risk-management practices.

The take-away
Although the new proposals represent a step in the right direction, important modifications are still needed. This article suggests four key ones.

In discussing the state of the financial services industry, it's hard not to reference the events of Sept. 11. Yet even before that day, the industry was undergoing a number of changes that will affect customers, employees, analysts, managers and others. These changes, and the outlook ahead, were the focus of two Wharton conferences in October (2001).

Anyone with a Starbucks "stored value" card knows how easy it is these days to pay for his or her café latte. But the stored value card - like its higher-tech cousin the smart card, where value is stored on the card's computer chip rather than on a server - is just one of the emerging technologies now gaining momentum while paper check usage is in decline, according to a new study by the Federal Reserve System.

Acquiring bankrupt assets may seem like a smart move. But valuing distressed intangibles can be a tricky business.

By understanding what the Small Business Adminstration does and doesn't do, business owners can be in a better position to take advantage of this often misunderstood government program.

If banks have to come clean about their off-balance-sheet leverage, get ready to pay more for money.

In the aftermath of September 11's terrorist atrocities, it will surprise few people to learn that operational risk has been a hot topic of debate among financial institutions and regulators. Unlike risks of borrowers defaulting on debt or markets collapsing, operational risk management deals with internal system failures (such as a rogue trader) or external events (such as terrorist attacks). A conference organized by Wharton's Financial Institutions Center and Oliver, Wyman & Co. recently explored current controversies in assessing and managing operational risk.

The financial system has coped remarkably well with a horrendous couple of years.

Does a global financial system need a global regulator?

Article takes a look at "efficient markets" and "behavioural finance" theories and examines their relevance to financial market bubbles.

Compared with the previous peak of global capital, the amount of money flowing to poorer countries today is already small. Maurice Obstfeld and Alan Taylor, two economists, point out that less-developed countries' share of total global debt is at an all-time low. In 1900, these countries accounted for 33% of the total; in the 1990s, the figure was down to 11%. In 1913, the countries in the bottom fifth of income per person received around 25% of the world stock of foreign capital, much the same as the countries in the richest fifth. By 1997, the poorest fifth's share was down to under 5%, compared with 36% for the richest fifth. According to Messrs Obstfeld and Taylor, today's capital transactions seem to be "mostly a rich-rich affair, a process of ‘diversification finance' rather than ‘development finance'...foreign investment in the poorest developing countries lags far behind the levels attained at the start of the last century." Why?