Research

26 pages, 795 KiB

Open AccessArticle

A Stochastic Markov Chain for Estimating New Entrants into Professional Pension Funds

by Alessandro Fiori Maccioni

J. Risk Financial Manag. 2023, 16(5), 276; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm16050276 - 17 May 2023

Viewed by 884

This paper presents a stochastic Markov chain model for estimating new entrants into professional orders and their related pension funds. The model considers the interactions between demographic, socio-economic and regulatory variables. The intuition behind it is that, in the medium term, trends in [...] Read more.

This paper presents a stochastic Markov chain model for estimating new entrants into professional orders and their related pension funds. The model considers the interactions between demographic, socio-economic and regulatory variables. The intuition behind it is that, in the medium term, trends in academic education can anticipate changes in the job market and preferences for highly skilled professions. Similarly, in the long term, fertility trends can anticipate the number of future young adults, thus influencing the overall occupational structure of employment. The model has been formalized mathematically and successfully validated by backtesting over historical data. The model’s predictions have been compared with the observed data of new entrants into the Italian order of chartered accountants (CNDCEC) between 2012 and 2021. The related professional pension fund (CNPADC) has also been analyzed under the additional assumption of stochastic returns with an evaluation of the impact of future new chartered accountants on its demographic and financial evolution between 2020 and 2070. Full article

(This article belongs to the Special Issue The Future of Banking Risk and Regulation)

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20 pages, 1881 KiB

Open AccessArticle

Stability and Bifurcations in Banks and Small Enterprises—A Three-Dimensional Continuous-Time Dynamical System

by Marco Desogus and Beatrice Venturi

J. Risk Financial Manag. 2023, 16(3), 171; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm16030171 - 03 Mar 2023

Cited by 2 | Viewed by 1222

Abstract

Here, we discuss a three-dimensional continuous-time Lotka–Volterra dynamical system, which describes the role of government in interactions with banks and small enterprises. In Italy, during the COVID-19 emergency, the main objective of government economic intervention was to maintain the proper operation of the [...] Read more.

Here, we discuss a three-dimensional continuous-time Lotka–Volterra dynamical system, which describes the role of government in interactions with banks and small enterprises. In Italy, during the COVID-19 emergency, the main objective of government economic intervention was to maintain the proper operation of the bank–enterprise system. We also review the effectiveness of measures introduced in response to the COVID-19 pandemic lockdowns to avoid a further credit crunch. By applying bifurcation theory to the system, we were able to produce evidence of the existence of Hopf and zero-Hopf bifurcating periodic solutions from a saddle focus in a special region of the parameter space, and we performed a numerical analysis. Full article

(This article belongs to the Special Issue The Future of Banking Risk and Regulation)

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25 pages, 1458 KiB

Open AccessArticle

The Effects of Securitization for Managing Banking Risk Using Alternative Tranching Schemes

by Pedro Cadenas and Henryk Gzyl

J. Risk Financial Manag. 2022, 15(10), 420; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm15100420 - 21 Sep 2022

Viewed by 1226

Abstract

Diversification practices by banks affect their own risk of failing and the risk of the banking system as a whole (systemic risk). A seminal theoretical work has shown that linear diversification can reduce the risk of a bank failing, but at the cost [...] Read more.

Diversification practices by banks affect their own risk of failing and the risk of the banking system as a whole (systemic risk). A seminal theoretical work has shown that linear diversification can reduce the risk of a bank failing, but at the cost of increasing systemic risk. Later, a follow-up study showed that a particular strategy of securitization with tranches can help avoid this trade-off. We extend the theoretical work on securitization by considering all possible strategies for securitization with two tranches, by finding their corresponding optimal diversification solutions, and by discussing their implications for individual and systemic risk. We show that securitization that involves exchanging a portion of both tranches brings back the dark side of diversification. In addition, we also show how different strategies of securitization can have risk amplification effects among banks when confidence shocks occur. Full article

(This article belongs to the Special Issue The Future of Banking Risk and Regulation)

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13 pages, 2463 KiB

Open AccessArticle

Are Banks Still a Risk Source for Stock Market? Some Empirical Evidences

by Michele Anelli, Michele Patanè and Stefano Zedda

J. Risk Financial Manag. 2022, 15(7), 310; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm15070310 - 15 Jul 2022

Viewed by 1255

Abstract

The global financial crisis of 2008 proved that what initially appeared to be relatively small losses in the financial system can be magnified to systemic ones. The European Union debt crisis has thus revived interest in the interdependence across different markets, especially sovereign [...] Read more.

The global financial crisis of 2008 proved that what initially appeared to be relatively small losses in the financial system can be magnified to systemic ones. The European Union debt crisis has thus revived interest in the interdependence across different markets, especially sovereign debt markets and the banking sector, and in the interlinkages among idiosyncratic and common shocks. This paper analyzes the evolution over time of the incidence of common shocks on the main Italian banking groups starting from the period of European Central Bank’s Quantitative Easing program. Results show that the banking sector is no longer perceived by the markets as a common risk source, overcoming the negative picture coming from the financial crisis of 2008–2009. The analysis also suggests that the common risk is broadly affected by the ECB monetary policy, and the idiosyncratic risk is linked to the recapitalization processes. Full article

(This article belongs to the Special Issue The Future of Banking Risk and Regulation)

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12 pages, 619 KiB

Open AccessArticle

Regulatory Response to the Rise of Fintech Credit in The Netherlands

by Fred Huibers

J. Risk Financial Manag. 2021, 14(8), 368; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm14080368 - 11 Aug 2021

Cited by 3 | Viewed by 4013

Abstract

The rise of financial technology (fintech) driven business models in banking poses a challenge for financial regulators. While the positive effects on the banking sector in terms of greater diversity and competition are generally recognized and encouraged by regulators, the nature of fintech [...] Read more.

The rise of financial technology (fintech) driven business models in banking poses a challenge for financial regulators. While the positive effects on the banking sector in terms of greater diversity and competition are generally recognized and encouraged by regulators, the nature of fintech business models may increase the risk of financial instability. Regulators are exploring ways to resolve this dilemma. The paper in hand makes a contribution to the literature by providing a framework for resolving the dilemma that is evaluated in the context of the regulatory response to the rise of fintech credit in the Netherlands. The semi-structured interviews which we conducted with four senior Dutch regulators resulted in three areas that–from their perspective–required urgent action: fintech credit companies need to lower the risk of overlending, increase pricing transparency, and improve lending standards. These findings were confirmed by the results of they survey among fintech credit clients. The current regulatory response to the rise of fintech in banking in the Netherlands provides an interesting case study that delineates the features of the future regulation of fintech in banking. Full article

(This article belongs to the Special Issue The Future of Banking Risk and Regulation)

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16 pages, 473 KiB

Open AccessArticle

Modeling and Simulating Cross Country Banking Contagion Risks

by Stefano Zedda and Antonella Spinace-Casale

J. Risk Financial Manag. 2021, 14(8), 351; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm14080351 - 31 Jul 2021

Cited by 1 | Viewed by 2182

Abstract

The recent financial crisis proved that financial contagion could spread among countries resulting in disruptive effects. In this paper, by modeling and simulating banking system behavior and linkages across countries, we assess, based on data from the BIS and IMF, the possible outcome [...] Read more.

The recent financial crisis proved that financial contagion could spread among countries resulting in disruptive effects. In this paper, by modeling and simulating banking system behavior and linkages across countries, we assess, based on data from the BIS and IMF, the possible outcome of domestic crises and how contagion spreads over countries. Results allow detailing the role of a “lighter” or of a “fueler” of financial crises for each country and assessing how each country can affect each other country by contagion, signaling the importance of financial interdependence between some neighboring countries, and detailing which counterpart country would be affected by the ring-fencing of each considered country’s banking system. The method also allows for what-if analyses to optimize the risk exposures, and to plan an emergency strategy in case of alarms coming from specific countries. Full article

(This article belongs to the Special Issue The Future of Banking Risk and Regulation)

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16 pages, 312 KiB

Open AccessArticle

Dynamics of Funding Liquidity and Risk-Taking: Evidence from Commercial Banks

by Faisal Abbas, Shoaib Ali, Imran Yousaf and Wing-Keung Wong

J. Risk Financial Manag. 2021, 14(6), 281; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm14060281 - 21 Jun 2021

Cited by 7 | Viewed by 3460

Abstract

The purpose of this study is to investigate the impact of funding liquidity risk on the banks’ risk-taking behavior. To test the hypotheses, we apply the two-step system GMM technique on US commercial banks data from 2002 to 2018. We find that funding [...] Read more.

The purpose of this study is to investigate the impact of funding liquidity risk on the banks’ risk-taking behavior. To test the hypotheses, we apply the two-step system GMM technique on US commercial banks data from 2002 to 2018. We find that funding liquidity increases the banks’ risk-taking of US commercial banks. Furthermore, banks with higher deposits are less likely to face a funding shortage, and bank managers’ aggressive risk-taking activity is less likely to be monitored. Our findings infer that increases in bank funding liquidity increase both risk-weighted assets and liquidity creation, and deposit insurance creates a moral risk issue for banks taking excessive risks in response to deposit rises. The relationship between funding liquidity and the banks’ risk-taking varies with their capitalization and market conditions; the impact of funding liquidity on risk-taking is pronounced for well-capitalized banks and the Global Financial Crisis 2007. Our tests are robust for the usage of alternate proxy of funding liquidity and by controlling economic conditions. The findings of this study have implications for regulators to develop guidelines for the level of liquidity and risk-taking of commercial banks. Full article

(This article belongs to the Special Issue The Future of Banking Risk and Regulation)

22 pages, 638 KiB

Open AccessArticle

A Holistic Perspective on Bank Performance Using Regulation, Profitability, and Risk-Taking with a View on Ownership Concentration

by Shailesh Rastogi, Rajani Gupte and R. Meenakshi

J. Risk Financial Manag. 2021, 14(3), 111; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm14030111 - 08 Mar 2021

Cited by 20 | Viewed by 2553

Abstract

There is a lack of a holistic perspective on bank performance. This study proposes a multidimensional (three-pronged) approach encompassing regulation, profitability, and nonperforming assets (NPAs) and their interactions as a measure of the performance of a bank. Moreover, the impact of equity holdings [...] Read more.

There is a lack of a holistic perspective on bank performance. This study proposes a multidimensional (three-pronged) approach encompassing regulation, profitability, and nonperforming assets (NPAs) and their interactions as a measure of the performance of a bank. Moreover, the impact of equity holdings of promoters, institutional investors, and retail investors on the proposed three-pronged approach of the bank performance are also explored. Values of the concerned variables were gathered from 2016 to 2019. The dynamic panel data method was applied to empirically test the proposed model. The main findings supported the premises of the proposed approach to bank performance. Furthermore, various ownership classes provided mixed results for their impact on bank performance. Unfavorable roles of promoters and institutional investors and an indifferent role of the retail investors group were startling outcomes of the study. Successful empirical endorsement of the proposed approach for bank performance provides a fresh perspective and has varied policy- and managerial-level implications. The findings regarding various shareholder groups (ownership classes) can be a catalyst to set the policy for ownership distribution in banks, as well as shareholder protection and activism, which are conspicuously absent in India. Full article

(This article belongs to the Special Issue The Future of Banking Risk and Regulation)

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21 pages, 1441 KiB

Open AccessArticle

Troubles with the Chf Loans in Croatia: The Story of a Case Still Waiting to Be Closed

by Ana Kundid Novokmet

J. Risk Financial Manag. 2021, 14(2), 75; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm14020075 - 09 Feb 2021

Cited by 1 | Viewed by 3733

Abstract

In numerous Central and Eastern European (CEE) countries, the global financial crisis as well as the unpegging of the foreign exchange rate of the Swiss franc (CHF) against the euro amplified the repayment troubles of households with the outstanding CHF-linked debt. In Croatia, [...] Read more.

In numerous Central and Eastern European (CEE) countries, the global financial crisis as well as the unpegging of the foreign exchange rate of the Swiss franc (CHF) against the euro amplified the repayment troubles of households with the outstanding CHF-linked debt. In Croatia, the CHF loans were approved mainly as mortgages to unprotected and subprime household borrowers without sufficient credit capacity for long-term euro-linked loans, which also contained a possibility of an incremental interest rate change, i.e., the so-called administrative interest rate. This article aims to disclose the reasons behind the credit boom of these loans, the unsustainable CHF debt hardship that the household sector consequently faced, and how it was/could have been resolved, with the Croatian banking sector at the center of the research. Although the CHF case of Croatia has some specificities concerning the prudential regulation and government-sponsored loan conversion, the findings about the supply and demand determinants of the CHF credit boom, as well as a critical assessment of the Croatian government and central bank interventions, might be useful for timely noticing universal threats from the exotic currency-linked loans for the systemic risk and financial stability, and for minimizing the negative externalities from probable debt relief measures. Based on the descriptive and univariate statistics conducted on Bloomberg and the Croatian National Bank (CNB) data, it was found that interest rate differentials and carry trading behavior were the main reasons for the rapid CHF credit growth in Croatia. Nevertheless, according to the financial experts’ opinions obtained via a questionnaire survey, and the court verdicts reached since, the financial consumer protection when contracting these loans was severely violated, which implies that the central bank must enhance its consumer protection role. By adopting a single-country and holistic approach, this is the first paper that deals with the socioeconomic dynamic of the CHF credit default issues in Croatia, which might be interesting as a case study or for making comparison with other CEE countries that have been coping with negative consequences of Swiss francization. Full article

(This article belongs to the Special Issue The Future of Banking Risk and Regulation)

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11 pages, 1070 KiB

Open AccessCommunication

Lost in Missions? Employees as a Top Strategic Priority of the World’s Biggest Banks

by Dmitry A. Ruban and Natalia N. Yashalova

J. Risk Financial Manag. 2021, 14(2), 46; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm14020046 - 21 Jan 2021

Cited by 4 | Viewed by 2446

Abstract

Human resources are vitally important to banking. The mission statements of 50 banks with the biggest market value are analyzed qualitatively and quantitatively for subsequent judgments of consideration of employees among top strategic priorities of these organizations. The staff-related notions are found in [...] Read more.

Human resources are vitally important to banking. The mission statements of 50 banks with the biggest market value are analyzed qualitatively and quantitatively for subsequent judgments of consideration of employees among top strategic priorities of these organizations. The staff-related notions are found in the only 30% statements. Employees are considered in different aspects, and most frequently in regard to their work and duties. The top 10 banks pay attention to personnel development, career, and success. The findings of the present study indicate on the underrepresentation of the staff-related strategic priority in the mission statements of the world’s biggest banks. This seems to be a serious cavity in their strategic communication, dangerous to organization reputation and job satisfaction, and, thus, many actual mission statements need improvement. Full article

(This article belongs to the Special Issue The Future of Banking Risk and Regulation)

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