Banking in a theory of the business cycle: a model and critique of the Basle Accord on risk-based capital requirements for banks

This paper presents a theoretical framework for understanding the investment decisions and financing decisions of financial and non-financial enterprises over the business cycle. At the core of this theoretical framework is an agency problem between relatively more risk averse depositor/bondholders and relatively less risk averse stockholders. The solution to this agency problem is a corporate governance system that takes the form of an up-front contract that directs managers to make portfolio/investment decisions in the interest of their stockholders, and financing decisions in the interest of their depositor/bondholders. This enables depositor/bondholders to offset any risk shifting portfolio/investment decisions made on behalf of the shareholders thereby mitigating the moral hazard problem among debtors and creditors. The Basle Accord on risk-based capital requirements for depository institutions is one particular regulatory application of this more general theoretical framework. The paper concludes with a comparison between the Basle Accord and the 100% reserve or narrow banking proposal as the means of achieving a risk-free medium of exchange and a financial system that facilitates the optimal transfer of resources from savers to investors consistent with society’s aversion towards risk.     

Relational Justice in Organizations: The Group-Value Model and Support for Change

This paper examines the psychological dynamics of the Group-Value Model for a behavioral orientation which has seldom been considered in the social justice literature: acceptance and support for change. A field study was conducted, with 176 participants members of an organization which was undergoing a change process. Participants were asked (a) to think of a specific relevant conflict situation with their supervisor; (b) to evaluate supervisor's behavior in that situation, with respect to relational and distributive justice; (c) to state the justice aspects most valued in conflict situations with their supervisor. A test of the model was conducted through a mediation analysis. According to the Group-Value Model (GVM), respect experienced within the group and pride in the group were mediating variables between justice judgements and orientation toward acceptance and support for change in the organization. Interactional and procedural aspects (relational judgements) were the only ones to predict pride, respect, and behavioral orientation, and were also the ones most valued in general conflict situations with the supervisor. The model was also tested at three different levels of analysis: organization as a whole, department, and work group. This confirmed pride and respect within the group as mediating variables between relational justice judgements and orientation toward acceptance and support for change at the department and workgroup levels.