This study provides responses to the question of the effectiveness of Loan-To-Value (LTV) and Debt Service-To-Income (DSTI) caps to contribute to financial stability. Using a lender’s risk management perspective, the paper provides a new methodology extending the standard asymptotic single risk factor to a multifactor framework, the additional factors being linked to LTV or DSTI tranches. On the basis of a unique database containing 850 896 individual housing loans, the results demonstrate the efficiency of credit standards which constrain the households’ indebtedness. On average, credit risk tends to grow in line with the increase of LTV and DSTI tranches. But our findings show also that the relationship between the risk’s growth and the ratios’ growth is not monotonic. Portfolio credit risk culminates in tranches close to the 100% LTV and the 35% DSTI thresholds. This has implications for the calibration of LTV and DSTI caps in a macroprudential perspective.

Do LTV and DSTI caps make banks more resilient

Cette recherche prend pour objet l’Union bancaire, a savoir la principale reforme des institutions de l’Union europeenne souhaitee par les chefs d’Etat et de gouvernement en reponse a la crise financiere de 2008. La reforme confie notamment a la Banque centrale europeenne la charge de superviser les banques de la zone euro a partir de novembre 2014. A la croisee d’une sociologie de la finance en discussion avec une sociologie des sciences et des techniques, et d’une sociologie politique attentive aux instruments d’action publique, la these propose d’analyser les nouvelles pratiques de supervision comme un probleme de gouvernement au sens de Michel Foucault. Elle decrit ainsi l’Union bancaire comme un agencement institutionnel, a savoir un assemblage d’acteurs, de pratiques de verification et de dispositifs de controle, au sein duquel s’invente une forme inedite d’intervention. Cet agencement produit une expertise europeenne centralisee sur un territoire de gouvernement. Sur celui-ci, la problematisation de la bonne conduite des etablissements vise a garantir un devenir perenne des actifs des investisseurs, sans agir de facon dirigiste sur les flux financiers. Les autorites de supervision des Etats prenant part a l’agencement sont en charge de relayer les decisions collectivement actees a Francfort sur leurs banques considerees comme nationales. La these contribue aux debats academiques contemporains relatifs a la finance et a la construction europeenne, en rendant visibles par l’enquete les effets d’une action publique tournee vers le probleme de la gestion de l’investissement en Europe. Elle permet notamment de saisir la recomposition des souverainetes etatiques en matiere de politique bancaire qui, loin de s’effacer, jouent un role decisif dans la constitution du territoire etudie. Les developpements sont elabores a partir d’une enquete qualitative, incluant une ethnographie de l’Autorite de controle prudentiel et de resolution (ACPR), une campagne d’entretiens et une analyse documentaire.

https://pastel.archives-ouvertes.fr/tel-02454085/document

Constituer un territoire de gouvernement pour la finance : enquête sur l’expertise de supervision au sein de l’Union bancaire européenne

After the great financial crisis of 2007–2009, central banks were handed a macroprudential mandate to contain systemic risks, a mandate seen as endangering their independence due to expected distributional conflicts. At the same time, depoliticization through scientific expertise was largely foreclosed, as systemic risk was a largely undefined concept. This paper focuses on how central banks dealt with this conundrum. It examines the scientific debate on systemic risk and macroprudential regulation post-crisis, focusing on the debate's impact on final regulation. Employing author-topic-modeling on a unique dataset of 2397 published economic papers on the relevant topics, we detect the formation of a new alliance between central bankers and academic economists working jointly on developing systemic risk measures. Centered around a hinge of systemic risk contribution by individual banks, this new alliance expresses itself by incorporating the macroprudential concerns of practitioners into abstract market-based systemic risk measures. These measures develop incrementally, using and repurposing techniques from financial economics pre-crisis to legitimize and justify macroprudential interventions post-crisis. This alliance allows us to account for the incremental change witnessed post-crisis and point to its potential for long-term fundamental change.

Measuring and mitigating systemic risks: how the forging of new alliances between central bank and academic economists legitimize the transnational macroprudential agenda

The statistical methodology known in financial terminology as ‘stress testing’ was used by the European Central Bank in 2014 in order to assess the solidity of the banks in the eurozone. This audit...

Banking supervision and the politics of verification: the 2014 stress test in the European Banking Union

Using a unique and comprehensive data set on the two largest economies of the Eurozone - France and Germany - this paper first proceeds to a computation of the Gordy formula relaxing the ad hoc sizedependent constraints of the Basel formulas. Our study contributes to Article 501 of the Capital Requirements Regulation (CRR) requesting analysis of the consistency of own funds requirements with the riskiness of SME. In both the French and the German sample, results suggest that the relative differences between the capital requirements for large corporates and those for SME (in other words the capital relief for SME) are lower in the Basel III framework than implied by empirically estimated asset correlations. Results show that the SME Supporting Factor in the CRR/CRD IV is able to compensate the difference between estimated and CRR/CRD IV capital requirements for loans in the corporate portfolio. However, no empirical evidence is found supporting the € 1.5 mln SME threshold currently included in Article 501 (CRR).

Support for the SME supporting factor: Multi-country empirical evidence on systematic risk factor for SME loans

The SRISK measure is advertised as measuring the recapitalization needed by a financial institution in the event of a financial crisis. It is computed from the estimated reaction of the institution’s share price in the event of a sharp drop in market prices. This indicator relies both on an economic analysis and an econometric model. It is applied to a large set of international and domestic financial institutions, updated regularly and made available online. Although innovative, it stirred naturally debates among academics, supervisors and professionals, highlighting some limitations, in particular when considering the SRISK measure as a supervisory tool. First, the SRISK is based on market return data: consequently, it applies only to listed institutions and is exposed to criticisms as to which extent it can mirror fundamentals. Second, the SRISK seems to lack sound foundations for policy analysis: with a reduced-form approach, conclusions regarding causality are not obvious from an economic point of view. Moreover the SRISK is a conditional measure to an event whose likelihood is not integrated in the framework. Third, empirical analyses of SRISK as a supervisory tool, used for instance to identify systemic financial institutions (SIFIs) or as an early-warning indicator, have shown some limited perspectives.

What is the information content of the SRISK measure as a supervisory tool

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What is the information content of the SRISK measure as a supervisory tool