Publications
▪ "(When) do banks react to anticipated capital reliefs?", 2025, with Benjamin Guin, Steven Ongena and Paolo Siciliani , Accepted for publication at the International Journal of Central Banking
We study how banks react to policy announcements during a representative policy cycle involving consultation and publication using a novel dataset on the population of all mortgage transactions and regulatory risk assessments of banks. We demonstrate that banks likely to benefit from lower capital requirements increase the size of this capital relief by permanently investing into low risk assets after the publication of the policy. In contrast, there is no evidence that they already reacted to the early step of the development of the policy, the publication of the consultation paper. We show how these results can be used to estimate a lower bound on the cost of capital for smaller banks, for which such estimates are typically difficult to obtain.
▪ "Bank funding costs and solvency", 2022, with Giuseppe Avignone, Cosimo Pancaro and Dawid Zochowski, the European Journal of Finance
This paper investigates the relationship between bank funding costs and solvency for a large sample of euro area banks using two proprietary ECB datasets for both wholesale funding costs and deposit rates. In particular, the paper studies the relationship between bank solvency, on the one hand, and senior bond yields, term deposit rates and overnight deposit rates, on the other. The analysis finds a significant negative relationship between bank solvency and the different types of funding costs. It also shows that this relationship is non-linear, namely convex, for senior bond yields and term deposit rates. It also identifies a positive realistic solvency threshold beyond which the effect of an increase in solvency on senior bond yields becomes positive. The paper also finds that senior bond yields are more sensitive to a change in solvency than deposit rates. Among the deposit rates, the interest rates of the overnight deposits are the least sensitive. Banks’ asset quality, profitability and liquidity seem to play only a minor role in driving funding costs while the ECB monetary policy stance, sovereign risk and financial markets uncertainty appear to be material drivers.
▪ “Is the European banking system robust. An evaluation through the lens of the ECB’s Comprehensive Assessment”, with S. Dehmej, International Economics, Volume 147, October 2016, Pages 126–144
The results of the Comprehensive Assessment conducted by the ECB seem to attest the soundness of the European banking system since only 8 of 130 assessed banks had to raise capital (€6bn) when results were released. However, non-failing banks are not completely healthy. If the Comprehensive Assessment has been a very complex exercise, it has flaws that lead to middling conclusion on the soundness of the Eurozone banking system. Relying on stress test's literature and an international comparison, we show that the assumptions used for the Asset Quality Review and stress tests lead to weak capital requirements. Using public bank-level data provided by the ECB and the EBA, we address some critics and highlight substantial capital shortfalls due to the transitional arrangements, an implementation of Basel III sovereign debt requirements instead of the zero risk weights applied in Europe and a stressed leverage ratio as a complementary indicator of banks soundness. Finally, we show that the low profitability, the massive dividend distribution and the incurred fines, give rise to concern on the ability of Eurozone banks to meet the incoming capital requirements.
Working papers
▪ "Capital and liquidity interaction in banking", 2019, with Jonathan Acosta-Smith, Kristoffer Milonas and Quynh-Anh Vo, Bank of England SWP
We study the interaction between banks’ capital and their liquidity transformation in both a theoretical and empirical set-up. We first construct a simple model to develop hypotheses which we test empirically. Using a confidential Bank of England dataset that includes bank-specific capital requirement changes since 1989, we find that banks engage in less liquidity transformation when their capital increases. This finding suggests that capital and liquidity requirements are at least to some extent substitutes. By establishing a robust causal relationship, these results can help guide the optimal joint calibration of capital and liquidity requirements and inform macro-prudential policy decisions.
▪ “Liquidity and Equity Short Term Fragility: Stress-Tests for the European Banking System”, 2016, with C. Bruneau and Z. Peng, CES Working Paper
This paper assesses Eurozone banks' resilience in both terms of equity and liquidity against large shocks to financial markets by using a CVRF model which combines copulas and factorial structures. Our analysis refers to 35 banks of the Eurozone from 2005 to 2015. Our contribution is threefold. First, we employ a model that take into account not only the links between the assets composing banks' portfolios but also we also consider second round and spill over effects between different markets and countries. We show that spill overs have notably changed over the sample period. Second, we measure the impacts of different types of shocks (stock market and bond market) on bank's solvability and liquidity position and show that liquidity shortfalls are substantial especially for small banks or banks from peripheral country. Third, we assess the role of diversification in improving banks' resilience by examining the particular situation where stock and bond returns become positively dependent as recently observed. We show that for some banks it increases shortfalls up to 120%.
Work in Progress
▪ " Can banks use their liquid asset buffers?", with Antoine Lallour
We assess how disclosure affects the usability of the liquid asset buffer that banks hold due to liquidity regulation (the Liquidity Coverage Ratio, or LCR). Using data, we show that banks tend to disclose quite detailed information around their LCR buffer holdings, sometimes more frequent and detailed than required by regulation. This has consequences on buffer usability. Using a model, we show that such disclosures can sometimes reduce incentives for banks to use their liquid asset buffer in stress, making the buffer partially unusable.
Policy papers
▪ " Une évaluation du « Comprehensive Assessment » de la BCE ", 2015, with S. Dehmej, Policy Paper n°5, Labex RéFi
Les résultats de l’évaluation complète (« Comprehensive Assessment ») menée par la BCE semblent attester la solidité du système bancaire européen dans la mesure où seulement 8 banques sur les 130 évaluées ont encore besoin de lever 6 milliards d’euros. Pour autant, conclure à la bonne santé des banques ayant passé le test avec succès serait une erreur : si l’on prend en considération les exigences présentes et à venir de Bâle III, les besoins en capital sont de l’ordre de 160 à 250 milliards à l’horizon 2019. En outre, l’évaluation complète comporte de nombreuses limites. Les hypothèses retenues pour l’examen de la qualité des actifs (« Asset Quality Review », AQR) et le test de résistance conduisent à des scénarios et exigences relativement faibles qui réduisent la portée des résultats obtenus. De plus, la communication autour de ces derniers s’est cantonnée au ratio de capital pondéré, alors que le ratio de levier est aussi porteur d’informations sur la solidité des banques européennes et fait entrevoir une situation plus contrastée. Nos calculs montrent que pour 2016, ce sont 40 milliards qui doivent être encore levés pour satisfaire à l’exigence d’un ratio de levier à 3%. Enfin, le ratio de capital pondéré ne doit pas être pris au pied de la lettre, car son périmètre évoluera encore dans les quatre ans à venir lors du passage définitif à Bâle III, et les pays ne suivent pas tous le même rythme d’adoption.
Other work
▪ “Banking Fragility and Structure of the Financial Market”, 2016
In this paper I investigate the relationship between the structure of the banking market and financial stability through three channels: market power, bank complexity and bank portfolio diversification. Using a panel analysis on 108 countries over the period 1995 to 2009, I show that concentration has a negative impact on financial stability through an increase in market power of existing banks.