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2018 EBA Policy Research Workshop Summary

Event Overview

• Date: 28–29 November 2018
• Location: EBA, Picasso room, Floor 46, One Canada Square, Canary Wharf, London, E14 5AA, UK
• Theme: "Reaping the benefits of an integrated EU banking market"
• Organizer: European Banking Authority (EBA)
• Objective: To explore the challenges and opportunities in creating a more integrated EU banking market, focusing on regulation, risk management, business models, and cross-border lending.

Day 1 – 28 November 2018

Agenda Highlights

• Registration: 08:30–09:30

• Welcome Speech: Andrea Enria, EBA Chairperson (09:30–09:50)

• Key Note Speech: Daniel Gros, Director, CEPS-Centre for European Policy Studies (09:50–10:50)

  • Topic: "Banking Union as a shock absorber"
  • Focus: The role of the Banking Union in stabilizing the EU financial system during economic shocks.

• Session 1: Regulation and Risk Management (11:20–13:10)

  • Paper 1: Margherita Giuzio (ECB), Ben Craig (Federal Reserve Bank Cleveland), Sandra Paterlini (EBS Universitat fur Wirtschaft und Recht)
    • Topic: "The Effect of Possible EU Diversification Requirements on the Risk of Banks' Sovereign Bond Portfolios"
    • Key Insight: Diversification requirements may reduce risk but also have unintended consequences on bank portfolios.
  • Paper 2: Giovanni Bassani (ECB)
    • Topic: "Legal prudential obstacles to the integration of the banking sector in the Euro Area"
    • Key Insight: Legal and regulatory differences across Euro Area countries pose significant barriers to banking integration.
  • Paper 3: Peter Hoffmann, Sam Langfield, Federico Pierobon (ECB), Guillaume Vuillemey (HEC Paris and CEPR)
    • Topic: "Who bears interest rate risk?"
    • Key Insight: Interest rate risk is distributed unevenly among banks and is influenced by their funding structures.
  • Chair: Samuel Da Rocha Lopes (EBA)
  • Discussants: Andrea Pirrone (UK FCA), Emilios Avgouleas (University of Edinburgh), Angel Berges (Universidad Autonoma de Madrid)

• Lunch: 13:10–14:10

• Session 2: Business Models (14:10–16:00)

  • Paper 1: Justine Pedrono and Aurelien Violon (ACPR)
    • Topic: "Banks' capital structure: a story of internationalization and business model"
    • Key Insight: Internationalization and evolving business models are reshaping banks' capital structures.
  • Paper 2: Rym Ayadi, Barbara Casu (Cass Business School), Paola Bongini, Doriana Cucinelli (University of Milano Bicocca)
    • Topic: "Banks' business model migrations in Europe: determinants and effects"
    • Key Insight: Business model changes in European banks are driven by regulatory shifts, market dynamics, and technological advancements.
  • Paper 3: Eugenio Avisoa, Boubacar Camara, Sébastien Frappa, Oana Toader (ACPR)
    • Topic: "Banks' business models and performance: the impact of interest rates and capital requirements"
    • Key Insight: Interest rates and capital requirements significantly influence bank performance and business models.
  • Chair: Martin Summer (National Bank of Austria)
  • Discussants: Monika Marcinkowska (University of Lodz), Oana Toader (ACPR), Barbara Casu (Cass Business School)

• Coffee Break: 16:00–16:30

• Session 3: Cross-border Lending (16:30–18:20)

  • Paper 1: Anamaria Illes, Marco Lombardi (Bank for International Settlements, Basel), Paul Mizen (University of Nottingham)
    • Topic: "The divergence of bank lending rates from policy rates after the financial crisis: the role of bank funding costs"
    • Key Insight: Post-crisis, bank lending rates have diverged from policy rates, influenced by funding costs.
  • Paper 2: Mary Everett, Valerie Herzberg, Michael O'Grady, Peter McQuade (Central Bank of Ireland)
    • Topic: "International bank flows and bank business models since the crisis"
    • Key Insight: Cross-border bank flows have changed significantly since the financial crisis, affecting business models.
  • Paper 3: Swarnava (Sonny) Biswas, Bálint L. Horváth, Wei Zhai (University of Bristol)
    • Topic: "Eliminating the tax shield through allowance for corporate equity: cross-border credit supply effects"
    • Key Insight: Tax shields can distort cross-border credit supply, and eliminating them may have implications for financial stability.
  • Chair: Mario Quagliariello (EBA)
  • Discussants: Hiona Balfoussa (Bank of Greece), Peter McQuade (Central Bank of Ireland)

• Drinks Reception: 18:20

Day 2 – 29 November 2018

Agenda Highlights

• Registration: 08:30–09:00

• Session 4: Systemic Risks and Macro-prudential Regulation (09:00–10:50)

  • Paper 1: Mathias Schaller and Michael Sigmund (OeNB)
    • Topic: "The Capital Buffer Calibration for Other Systemically Important Institutions - Is there too much Country Heterogeneity?"
    • Key Insight: Country-specific differences in capital buffer calibration may hinder the effectiveness of macro-prudential regulation.
  • Paper 2: Giuseppe Maddaloni (Banca d'Italia)
    • Topic: "Bank risks and liquidity dynamics: evidence from the euro area financial crisis"
    • Key Insight: Liquidity dynamics during the financial crisis highlight the importance of macro-prudential tools.
  • Paper 3: Sam Langfield, Spyros Alogoskoufis (ECB)
    • Topic: "Regulating the doom loop"
    • Key Insight: The "doom loop" between banking and sovereign debt needs to be addressed through coordinated regulation.
  • Chair: Lars Overby (EBA)
  • Discussants: Kim Abildgren (Danish Central Bank), Cyril Pouvelle (ACPR), Inês Drumond (Banco de Portugal)

• Coffee Break: 10:50–11:20

• Key Note Speech: Luc Laeven, Director-General Research Department, ECB (11:20–12:20)

  • Topic: "Credit Booms, Crises, and Financial Integration"
  • Key Insight: Credit booms and crises are closely linked to financial integration, and understanding this relationship is crucial for policy design.

• Lunch: 12:20–13:30

• Session 5: Banking Union - Resolution, Deposit Insurance (13:30–15:20)

  • Paper 1: Anatoli Segura (Banca d'Italia), Sergio Vicente (Queen Mary University of London)
    • Topic: "Bank resolution and public backstop in an asymmetric banking union?"
    • Key Insight: Asymmetric banking unions complicate the resolution process and the role of public backstops.
  • Paper 2: Andrzej Stopczyński (University of Lodz)
    • Topic: "The simplistic model to estimate the required amount of the bank's loss absorbing capacity"
    • Key Insight: Simplistic models may not adequately capture the complexity of loss absorbing capacity in systemic institutions.
  • Paper 3: Diana Bonfim (Banco de Portugal and Católica Lisbon School of Business and Economics), Joao Santos (Fed New York and Nova School of Business and Economics)
    • Topic: "The importance of deposit insurance credibility"
    • Key Insight: Credible deposit insurance is essential for maintaining public confidence and financial stability.
  • Chair: Klaus Dullmann (ECB)
  • Discussants: Francesc Rodríguez Tous (Cass Business School), Slawek Kozdras (EBA)

• End of the event

Core Content and Key Insights

Core Content

• The workshop focused on the integration of the EU banking market, with discussions spanning regulation, risk management, business models, and cross-border lending.
• It emphasized the role of the Banking Union in enhancing financial stability and reducing systemic risks.
• A significant portion of the agenda was dedicated to macro-prudential regulation and the challenges posed by the "doom loop."

Main Views

• Regulation and Risk Management: Diversification requirements, legal prudential obstacles, and interest rate risk distribution are critical areas for reform and coordination.
• Business Models: Banks' business models are evolving due to internationalization, regulatory changes, and interest rate dynamics.
• Cross-border Lending: Post-crisis, lending rates have diverged from policy rates, and cross-border flows are reshaping the financial landscape.
• Systemic Risks: The need for harmonized capital buffer calibration and addressing the "doom loop" is essential for systemic risk mitigation.
• Deposit Insurance: Credibility in deposit insurance is vital for public confidence and financial stability.

Key Information

• The event featured presentations from ECB, ACPR, CEPS, and other European institutions.
• Discussants included experts from the UK FCA, University of Edinburgh, and Central Bank of Ireland.
• The workshop provided a platform for interdisciplinary discussions on banking integration and financial stability.

Conclusion

The 2018 EBA Policy Research Workshop offered a comprehensive exploration of the EU banking market's integration, highlighting the importance of regulatory alignment, risk management, and macro-prudential oversight in fostering a resilient and stable financial system. The discussions underscored the need for coordinated policies to address systemic risks and enhance cross-border financial cooperation.