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Monday, September 29th, 2014
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| 12:00a |
Know thy banker — it could keep you solvent You’ve probably seen advertising campaigns in which banks describe how much their customer relationships matter to them. While such messaging might have been cooked up at an ad agency, it turns out there is some truth underlying these slogans.
As a newly published study co-authored by an MIT professor shows, strong working relationships between bankers and clients reduce the likelihood of loan delinquencies and defaults, at least in the context of an emerging economy.
Using propriety data from a large bank in Chile, the study finds that when loan officers go on leave, their clients in good standing — often small businesses — increase their probability of becoming delinquent on loans by almost 22 percent. For already-delinquent clients, the probability of default on loans increases by 18 percent.
At the same time, there is a 5 percent reduction in the approval rate for loans among those clients. That means banks are both issuing fewer loans and suffering more defaults when relationships between individual bankers and clients are interrupted.
Intriguingly, the study indicates that this aggregate phenomenon is due to actions by both the bank and its customers. The banks in question are probably not retaining or using the “soft information,” or informal knowledge, that absent bankers have collected about their clients. And the clients themselves seem more willing to take their business elsewhere, even if it means defaulting, when their bankers disappear.
“It is a two-way channel,” says Antoinette Schoar, the Michael M. Koerner Professor of Entrepreneurship and a professor of finance at the MIT Sloan School of Management, and a co-author of the paper reporting the findings. She attributes the results to “a type of loyalty building up between the client and the loan officer” that “could not only affect how good the loan information is … but also the willingness of the client to default.”
The findings also indicate that we should not think of credit ratings as simple, immutable predictors of client types that are unaffected by the ways that banking relationships are conducted.
“This interplay between how the bank treats the customer and how the customer reacts to the bank therefore has an impact on the bank’s repayment history,” Schoar explains. “It actually has an impact on the observed credit quality of the customer.”
She adds: “A financial system that is more effective in how it treats customers endogenously creates better creditors.”
Why loan officers leave
The paper, “Do Relationships Matter? Evidence from Loan Officer Turnover,” has been published in the journal Management Science. The authors are Schoar and Alejandro Drexler of the Federal Reserve Bank of Chicago.
To conduct the study, the scholars obtained detailed transaction data from BancoEstado, Chile’s largest lender to small businesses; that data involved 187,000 borrowers from 2006 to 2008. The study took advantage of the fact that loan officers leave banks for different reasons, some of which can be anticipated by the bank more easily. For instance, when a loan officer takes leave due to a pregnancy, the bank is better able to anticipate and replace the interrupted professional relationship, compared with instances when the loan officer suddenly takes sick leave.
When the loan officer takes a maternity leave, the paper notes, that banker’s clients “show no propensity to go to a bank outside of the current relationship.” However, clients of officers who take sick leave are 2 percent more likely to get a loan from another bank, which is 13 percent higher than the probability that the average client in the study will do so. And clients of bankers on sick leave are about 20 percent less likely than the average client to get a new loan from the same bank.
“When the loan officer has time to prepare the client for the leave, all these negative effects are much mitigated,” Schoar observes. “Ultimately it seems like this relationship and information is transferrable, given enough time.”
About 53 percent of the loan officers in the study were women, and they each had an average of 339 active clients.
More testing, better policies
Overall, the study is “a nice piece of evidence that speaks to the benefits of reduced turnover in industries where there’s soft information and/or high training costs,” says Raymond Fisman, a professor and director of the social enterprise program at Columbia Business School who has seen the paper.
As Schoar acknowledges, the study’s findings stem at least in part from the particular circumstances of its location and time, since detailed information about clients might be easier to obtain in other countries. On the other hand, the research fits with other types of studies across a variety of countries, including the U.S., pointing to the idea that person-to-person relationships influence outcomes in finance.
In Schoar’s view, the policy applications of the findings are relatively clear: Banks can do business more effectively and efficiently by instituting better practices to smooth over interruptions in banker/client relationships. To be sure, that also means banks would probably have to invest a bit more in those new practices. But as Schoar notes, that is a question that can at least be subjected to direct cost-benefit studies, which ultimately could produce more beneficial relationships between bankers and customers.
“The financial industry has to do more testing of the optimal mix between the use of technology and human interaction,” Schoar says. | | 12:00a |
How to make a “perfect” solar absorber The key to creating a material that would be ideal for converting solar energy to heat is tuning the material’s spectrum of absorption just right: It should absorb virtually all wavelengths of light that reach Earth’s surface from the sun — but not much of the rest of the spectrum, since that would increase the energy that is reradiated by the material, and thus lost to the conversion process.
Now researchers at MIT say they have accomplished the development of a material that comes very close to the “ideal” for solar absorption. The material is a two-dimensional metallic dielectric photonic crystal, and has the additional benefits of absorbing sunlight from a wide range of angles and withstanding extremely high temperatures. Perhaps most importantly, the material can also be made cheaply at large scales.
The creation of this material is described in a paper published in the journal Advanced Materials, co-authored by MIT postdoc Jeffrey Chou, professors Marin Soljacic, Nicholas Fang, Evelyn Wang, and Sang-Gook Kim, and five others.
The material works as part of a solar-thermophotovoltaic (STPV) device: The sunlight’s energy is first converted to heat, which then causes the material to glow, emitting light that can, in turn, be converted to an electric current.
Some members of the team worked on an earlier STPV device that took the form of hollow cavities, explains Chou, of MIT’s Department of Mechanical Engineering, who is the paper’s lead author. “They were empty, there was air inside,” he says. “No one had tried putting a dielectric material inside, so we tried that and saw some interesting properties.”
When harnessing solar energy, “you want to trap it and keep it there,” Chou says; getting just the right spectrum of both absorption and emission is essential to efficient STPV performance.
Most of the sun’s energy reaches us within a specific band of wavelengths, Chou explains, ranging from the ultraviolet through visible light and into the near-infrared. “It’s a very specific window that you want to absorb in,” he says. “We built this structure, and found that it had a very good absorption spectrum, just what we wanted.”
In addition, the absorption characteristics can be controlled with great precision: The material is made from a collection of nanocavities, and “you can tune the absorption just by changing the size of the nanocavities,” Chou says.
Another key characteristic of the new material, Chou says, is that it is well matched to existing manufacturing technology. “This is the first-ever device of this kind that can be fabricated with a method based on current … techniques, which means it’s able to be manufactured on silicon wafer scales,” Chou says — up to 12 inches on a side. Earlier lab demonstrations of similar systems could only produce devices a few centimeters on a side with expensive metal substrates, so were not suitable for scaling up to commercial production, he says.
In order to take maximum advantage of systems that concentrate sunlight using mirrors, the material must be capable of surviving unscathed under very high temperatures, Chou says. The new material has already demonstrated that it can endure a temperature of 1,000 degrees Celsius (1,832 degrees Fahrenheit) for a period of 24 hours without severe degradation.
And since the new material can absorb sunlight efficiently from a wide range of angles, Chou says, “we don’t really need solar trackers” — which would add greatly to the complexity and expense of a solar power system.
“This is the first device that is able to do all these things at the same time,” Chou says. “It has all these ideal properties.”
While the team has demonstrated working devices using a formulation that includes a relatively expensive metal, ruthenium, “we’re very flexible about materials,” Chou says. “In theory, you could use any metal that can survive these high temperatures.”
“This work shows the potential of both photonic engineering and materials science to advance solar energy harvesting,” says Paul Braun, a professor of materials science and engineering at the University of Illinois at Urbana-Champaign, who was not involved in this research. “In this paper, the authors demonstrated, in a system designed to withstand high temperatures, the engineering of the optical properties of a potential solar thermophotovoltaic absorber to match the sun’s spectrum. Of course much work remains to realize a practical solar cell, however, the work here is one of the most important steps in that process.”
The group is now working to optimize the system with alternative metals. Chou expects the system could be developed into a commercially viable product within five years. He is working with Kim on applications from this project.
The team also included MIT research scientist Ivan Celanovic and former graduate students Yi Yeng, Yoonkyung Lee, Andrej Lenert, and Veronika Rinnerbauer. The work was supported by the Solid-State Solar Thermal Energy Conversion Center and the U.S. Department of Energy. | | 1:16p |
Slovakia’s president, Andrej Kiska, visits MIT Last Friday, Slovak President Andrej Kiska, along with a delegation from Slovakia, visited MIT to discuss topics including innovation, entrepreneurship, and online learning.
Trained as an electrical engineer, Kiska gained prominence as a businessman in Slovakia’s consumer credit industry. Last March, he defeated Prime Minister Robert Fico in a runoff election to become Slovakia’s president. Also a noted philanthropist, Kiska had no previous political experience before taking office.
Kiska and his delegation began their visit with an overview of MIT, including the Institute’s strong global connections, presented by Philip S. Khoury, the Ford International Professor of History and associate provost, and Bernd Widdig, director of international affairs. Khoury and Widdig described MIT’s international ties, from its diverse campus community to partnerships such as the Singapore-MIT Alliance for Research and Technology.
Following the presentation by Khoury and Widdig, Kiska and his delegation met with Sanjay Sarma, MIT’s director of digital learning. Sarma discussed both edX, an online-learning platform founded by MIT and Harvard University in 2012, and MITx, the Institute’s own online-learning program. Kiska and his delegation heard Sarma explain the global success of edX and MITx to date, and the overall value of this innovative approach to online education.
During lunch in the Maclaurin Room, Kiska and his delegation discussed entrepreneurship and innovation with several MIT experts on the subject, including Fiona Murray and Vladimir Bulovic, co-directors of the MIT Innovation Initiative,; Sherwin Greenblatt, director of MIT’s Venture Mentoring Service; and Maren Cattonar of the MIT Deshpande Center.
Widdig, who was also in attendance, says that a notable moment occurred when Kiska asked the members of the MIT community what they would do to increase innovation and entrepreneurship if they were Slovakia’s president. A discussion ensued on how to make Slovakia more competitive, Widdig said, in which there was broad agreement that collaboration among the government, corporate sector, and universities was key to this process.
During his visit to the Institute, Kiska was joined by Peter Kmec, the Slovak ambassador to the U.S. Others in attendance included representatives of Slovakia’s Ministry of Foreign and European Affairs, Ministry of Finance, consulates in New York and Boston, and members of the Slovakian media. | | 3:00p |
Modeling shockwaves through the brain Since the start of the military conflicts in Iraq and Afghanistan, more than 300,000 soldiers have returned to the United States with traumatic brain injury (TBI) caused by exposure to bomb blasts — and in particular, exposure to improvised explosive devices, or IEDs. Symptoms of traumatic brain injury can range from the mild, such as lingering headaches and nausea, to more severe impairments in memory and cognition.
Since 2007, the U.S. Department of Defense has recognized the critical importance and complexity of this problem, and has made significant investments in traumatic brain injury research. Nevertheless, there remain many gaps in scientists’ understanding of the effects of blasts on the human brain; most new knowledge has come from experiments with animals.
Now MIT researchers have developed a scaling law that predicts a human’s risk of brain injury, based on previous studies of blasts’ effects on animal brains. The method may help the military develop more protective helmets, as well as aid clinicians in diagnosing traumatic brain injury — often referred to as the “invisible wounds” of battle.
“We’re really focusing on mild traumatic brain injury, where we know the least, but the problem is the largest,” says Raul Radovitzky, a professor of aeronautics and astronautics and associate director of the MIT Institute for Soldier Nanotechnologies (ISN). “It often remains undetected. And there’s wide consensus that this is clearly a big issue.”
While previous scaling laws predicted that humans’ brains would be more resilient to blasts than animals’, Radovitzky’s team found the opposite: that in fact, humans are much more vulnerable, as they have thinner skulls to protect much larger brains.
A group of ISN researchers led by Aurélie Jean, a postdoc in Radovitzky’s group, developed simulations of human, pig, and rat heads, and exposed each to blasts of different intensities. Their simulations predicted the effects of the blasts’ shockwaves as they propagated through the skulls and brains of each species. Based on the resulting differences in intracranial pressure, the team developed an equation, or scaling law, to estimate the risk of brain injury for each species.
“The great thing about doing this on the computer is that it allows you to reduce and possibly eventually eliminate animal experiments,” Radovitzky says.
The MIT team and co-author James Q. Zheng, chief scientist at the U.S. Army’s soldier protection and individual equipment program, detail their results this week in the Proceedings of the National Academy of Sciences.
Air (through the) head
A blast wave is the shockwave, or wall of compressed air, that rushes outward from the epicenter of an explosion. Aside from the physical fallout of shrapnel and other chemical elements, the blast wave alone can cause severe injuries to the lungs and brain. In the brain, a shockwave can slam through soft tissue, with potentially devastating effects.
In 2010, Radovitzky’s group, working in concert with the Defense and Veterans Brain Injury Center, a part of the U.S. military health system, developed a highly sophisticated, image-based computational model of the human head that illustrates the ways in which pressurized air moves through its soft tissues. With this model, the researchers showed how the energy from a blast wave can easily reach the brain through openings such as the eyes and sinuses — and also how covering the face with a mask can prevent such injuries. Since then, the team has developed similar models for pigs and rats, capturing the mechanical response of brain tissue to shockwaves.
In their current work, the researchers calculated the vulnerability of each species to brain injury by establishing a mathematical relationship between properties of the skull, brain, and surrounding flesh, and the propagation of incoming shockwaves. The group considered each brain structure’s volume, density, and celerity — how fast stress waves propagate through a tissue. They then simulated the brain’s response to blasts of different intensities.
“What the simulation allows you to do is take what happens outside, which is the same across species, and look at how strong was the effect of the blast inside the brain,” Jean says.
In general, they found that an animal’s skull and other fleshy structures act as a shield, blunting the effects of a blast wave: The thicker these structures are, the less vulnerable an animal is to injury. Compared with the more prominent skulls of rats and pigs, a human’s thinner skull increases the risk for traumatic brain injury.
Shifting the problem
This finding runs counter to previous theories, which held that an animal’s vulnerability to blasts depends on its overall mass, but which ignored the role of protective physical structures. According to these theories, humans, being more massive than pigs or rats, would be better protected against blast waves.
Radovitzky says this reasoning stems from studies of “blast lung” — blast-induced injuries such as tearing, hemorrhaging, and swelling of the lungs, where it was found that mass matters: The larger an animal is, the more resilient it may be to lung damage. Informed by such studies, the military has since developed bulletproof vests that have dramatically decreased the number of blast-induced lung injuries in recent years.
“There have essentially been no reported cases of blast lung in the last 10 years in Iraq or Afghanistan,” Radovitzky notes. “Now we’ve shifted that problem to traumatic brain injury.”
In collaboration with Army colleagues, Radovitzky and his group are performing basic research to help the Army develop helmets that better protect soldiers. To this end, the team is extending the simulation approach they used for blast to other types of threats.
His group is also collaborating with audiologists at Massachusetts General Hospital, where victims of the Boston Marathon bombing are being treated for ruptured eardrums.
“They have an exact map of where each victim was, relative to the blast,” Radovitzky says. “In principle, we could simulate the event, find out the level of exposure of each of those victims, put it in our scaling law, and we could estimate their risk of developing a traumatic brain injury that may not be detected in an MRI.”
Joe Rosen, a professor of surgery at Dartmouth Medical School, sees the group’s scaling law as a promising window into identifying a long-sought mechanism for blast-induced traumatic brain injury.
“Eighty percent of the injuries coming off the battlefield are blast-induced, and mild TBIs may not have any evidence of injury, but they end up the rest of their lives impaired,” says Rosen, who was not involved in the research. “Maybe we can realize they’re getting doses of these blasts, and that a cumulative dose is what causes [TBI], and before that point, we can pull them off the field. I think this work will be important, because it puts a stake in the ground so we can start making some progress.”
This work was supported by the U.S. Army through ISN. |
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