BANKING BUSINESS MODELS AND OWNERSHIP STRUCTURES BANKING BUSINESS MODELS AND OWNERSHIP STRUCTURES IN

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Transcript of BANKING BUSINESS MODELS AND OWNERSHIP STRUCTURES BANKING BUSINESS MODELS AND OWNERSHIP STRUCTURES IN

  • © HEC Montréal. All rights reserved. institutcoop.hec.ca

    BANKING BUSINESS MODELS AND OWNERSHIP STRUCTURES IN EUROPE – A CASE FOR DIVERSITY AND PROPORTIONALITY

    Rym Ayadi, Professor and Director of IRCCF, HEC Montréal

    Central Bank of Athens, Athens 13 January 2017

  • © HEC Montréal. All rights reserved. institutcoop.hec.ca

    Contents

    ü Background on EU Financial Integration ü Bank Business Models (BBM) and

    Ownership Diversity in Europe ü Evidence based – 2005-2015

    - Contribution to real economy -  (Financial) performance -  Risk -  Response to regulation

    ü BBM and Ownership: A case for Proportionality in regulation

    ü Conclusion 2

  • © HEC Montréal. All rights reserved. institutcoop.hec.ca 3

    Background

    Financial  integra,on    

    Compe,,on  

    Efficiency    

    Stability    

    Inclusion    

    1995-­‐2007   FSAP  

    ü  Key  priori,es   underlined  in  the   “economic  freedom”   model  

    ü  EU  passpor,ng     ü  From  min  to  max  

    harmoniza,on   ü  Focus  on  financial  

    performance  (ROE)   ü   and  efficiency  (CIR)    

      ü  Flawed  Basel  2  

    framework   ü  Failure  of  supervision     ü  Propor,onality  was  a  

    principle  on  paper  and   associated  to   supervisory  discre,on    

    ü  Inclusion  issues  under   DG  employment    

    Ø  TBTF,  TSTF  and  TB/S  TBS     Ø  Massive  State  Aid   Ø  Legacy  assets          

    2008   GFC  

    Financial  integra,on  a   driver  for  economic  

    integra,on  and  growth    

    Ø  Was  it  the  case  for  the   EU  and  individual  MS?  

    1995-­‐2007   FSAP  

  • © HEC Montréal. All rights reserved. institutcoop.hec.ca 4

    BMM and Ownership Diversity in Europe: Complex Architecture

    Note:  The  size  of  the  rounds  is  based  on   number  of  bank-­‐year  observa,ons.  

  • © HEC Montréal. All rights reserved. institutcoop.hec.ca 5

    Ownership  across  business  models  (%  of  assets)   -  Stakeholder value

    (STV) banks (e.g. cooperatives and savings banks) divided across all five business models

    -  Highest share among retail banks (i.e. focused and diversified)

    -  Shareholder value (SHV) banks relatively more wholesale and investment oriented

    Commercial     (4914)   25%  

    Coopera,ve     (9550)   49%  

    Na,onalised   (264)   1%  

    Public    (526)   3%  

    Savings   (4167)   22%  

    BMM and Ownership Diversity

    27%  

    49%   53%  

    26%  

    73%   29%  

    9%  

    20%  

    10%  

    15%  

    9%  

    24%   10%  

    0%  

    9%  

    9%  

    2%   3%  

    33%  

    1%  

    26%   16%   14%  

    32%  

    3%  

    0%  

    10%  

    20%  

    30%  

    40%  

    50%  

    60%  

    70%  

    80%  

    90%  

    100%  

    Focused  retail   Diversified   retail  type  1  

    Diversified   retail  type  2  

    Wholesale   Investment  

    Savings  

    Public  

    Na,onalised  

    Coopera,ve  

    Commercial  

    ObservaBons  by  cluster  (share  in  obs)  

  • © HEC Montréal. All rights reserved. institutcoop.hec.ca 6

    Financing the real economy

    Growth  in  outstanding  customer  loans  (median  values)   -  Slowdown in loan growth during fin.- and econ. crises, except for wholesale banks in 2010

    -  Contraction for investment banks in 2009

    -  Commercial, cooperatives, and in particular public banks continued to lend at lower levels to the economy in contrast to nationalised banks

    -­‐10%  

    -­‐5%  

    0%  

    5%  

    10%  

    15%  

    20%  

    25%  

    30%  

    2006   2007   2008   2009   2010   2011   2012   2013   2014   2015  

    Focused  Retail   Diversified  retail  type  1   Diversified  retail  type  2   Wholesale   Investment  

    -­‐10%  

    -­‐5%  

    0%  

    5%  

    10%  

    15%  

    20%  

    25%  

    30%  

    2006   2007   2008   2009   2010   2011   2012   2013   2014   2015  

    Commercial   Coopera,ve   Na,onalised   Public   Savings  

  • © HEC Montréal. All rights reserved. institutcoop.hec.ca 7

    Performance: RoA Return  on  assets  (RoA)(weighted  average)   -  Profits declined for

    across all BMs except wholesale

    -  Investment banks took severe hit in 2007/08

    -  Retail focused and diversified took hit during econ. crisis

    -  STV and SHV banks (e.g. cooperatives) continued to be profitable, except for the nationalised banks. Differences between most ownership structures limited

    -­‐1.5%  

    -­‐1.0%  

    -­‐0.5%  

    0.0%  

    0.5%  

    1.0%  

    1.5%  

    2005   2006   2007   2008   2009   2010   2011   2012   2013   2014   2015  

    Focused  Retail   Diversified  retail  type  1   Diversified  retail  type  2   Wholesale   Investment  

    -­‐1.5%  

    -­‐1.0%  

    -­‐0.5%  

    0.0%  

    0.5%  

    1.0%  

    1.5%  

    2005   2006   2007   2008   2009   2010   2011   2012   2013   2014   2015  

    Commercial   Coopera,ve   Na,onalised   Public   Savings  

  • © HEC Montréal. All rights reserved. institutcoop.hec.ca 8

    Performance: RoE

    -  Similar results for RoE

    - Relatively better performance investment and wholesale banks compared to other models due to lower equity ratios

    -  SHV & STV models profitable, except for nationalised banks

    Return  on  equity  (RoE)(weighted  average)  

    -­‐20%  

    -­‐15%  

    -­‐10%  

    -­‐5%  

    0%  

    5%  

    10%  

    15%  

    20%  

    25%  

    2005   2006   2007   2008   2009   2010   2011   2012   2013   2014   2015  

    Focused  Retail   Diversified  retail  type  1   Diversified  retail  type  2   Wholesale   Investment  

    -­‐32.3%   -­‐20%  

    -­‐15%  

    -­‐10%  

    -­‐5%  

    0%  

    5%  

    10%  

    15%  

    20%  

    25%  

    2005   2006   2007   2008   2009   2010   2011   2012   2013   2014   2015  

    Commercial   Coopera,ve   Na,onalised   Public   Savings  

  • © HEC Montréal. All rights reserved. institutcoop.hec.ca 9

    Risk: Loan losses

    Loan  loss  provisions   (%  of  gross  customer  loans,  weighted  average)  

    -  Provisions for loan losses increased substantially during crises

    -  Retail banks suffered especially during fin. and econ. crisis, while wholesale and investment banks increased provisions relatively more during fin. crisis

    -  The provisions remain in most recent years higher than before the crisis

    -  SHV- and nationalised banks increased the provisions substantially during crises as compared to STV banks -­‐0.5%  

    0.0%  

    0.5%  

    1.0%  

    1.5%  

    2.0%  

    2.5%  

    2005   2006   2007   2008   2009   2010   2011   2012   2013   2014   2015  

    Commercial  bank   Coopera,ve  bank   Na,onalised  bank   Public  bank   Savings  bank  

    -­‐0.5%  

    0.0%  

    0.5%  

    1.0%  

    1.5%  

    2.0%  

    2.5%  

    2005   2006   2007   2008   2009   2010   2011   2012   2013   2014   2015  

    Focused  Retail   Diversified  retail  type  1   Diversified  retail  type  2   Wholesale   Investment  

  • © HEC Montréal. All rights reserved. institutcoop.hec.ca 10

    Risk: Distance to default Distance  to  default  esBmates  (Z-­‐score,  weighted  average)  

    -  Focused retail (Type 1) banks are furthest from default

    -  Diversified retail, wholesale and investment banks are facing similar, but hi