The "Business model issue" is a topic of growing interest for the whole financial community as well as for banking regulators. As we know it today, the business model is a complex and dynamic object, composed of multiple elements and characterized by different facets that make it challenging to just give a shared definition and identify an appropriate analytical approach for its assessment. It's also still rapidly changing due to a series of factors including the disruptive digital innovation, the increasing regulatory pressures and the gradual exit from the financial crisis that has forced banks to a long period of low profitability. So the financial intermediaries are frequently involved into strategic rethinking on the viability and sustainability of their business models and on evaluating business transformations that could also be radical. How far will the banks push themselves on this path? What impacts these changes will reshape the structure of the financial sector? What characteristics will have the winning competitors? It is not easy to answer these questions; maybe today we can just guess the scope of change, but we do not fully understand its consequences and implications yet. The following paper tries to define business models, summarize the analytical approach both from a management and regulatory point of view and imagine their possible transformation according to the changes in the competitive environment.
There is growing evidence that ESG investments have demonstrated higher resiliency to the COVID-19 pandemic shock. While the performance of mutual funds is largely documented, there is limited evidence on stocks, especially in the European market. In this paper we focus on the environmental dimension of firms and we identify a green cluster among listed companies in the EU using a comprehensive database of environmental information. We let the data speak: we identify three clusters of firms (green, non-green and brown) by using clustering techniques and we evaluate their financial performances (return, risk and liquidity) over the full sample period and around the COVID-19 Crisis. We find that green firms yielded a lower return than non-green firms, especially after the Paris Agreement. However, in March 2020, green firms performed better than the other clusters. We find evidence that the COVID-19 period is not a special case, since green firms perform generally better during market contractions. We then extend standard asset pricing models by including the Green Risk Factor, the difference between the green and brown portfolios’ returns and we find that the Factor is significant for a large fraction of firms suggesting that climate risk is priced in stocks.
The AIFIRM Commission on the interest rate risk in the banking book (IRRBB) has been established in a period of significant changes in the related prudential supervisory framework, which started in April 2016 with the publication of Basel Committe on Banking Supervision (BCBS)’s new standards. BCBS confirmed the secondpillar classification of IRRBB and introduced changes in its measurement approach. European regulation has already partially adopted these standards; the European Banking Authority (EBA) will issue specific technical standards and update its guidelines by March 2022. The Commission has firstly analyzed the most significant aspects of the recent changes in IRRBB-related regulation, assessing the potential impacts on models, processes and banks’ exposure to IRRBB. Following this analysis, the Commission has developed operational proposals that intend to provide support to individual risk managers and their structures in measuring, controlling and managing IRRBB and in adapting bank processes to the new regulatory requirements.
The issue of risk-based pricing of credit loans has become crucial for banking companies, in a context characterized by severe restriction of profitability margins also in relation to a level of market interest rates which in the Euro area is at its lowest. historical, now firmly in the negative area. The same European Authorities urge the adoption of adequate and consistent adjusted pricing frameworks with respect to the business model, risk profile and overall risk governance of the bank. The methodological and organizational process for determining the risk-adjusted pricing is further complicated by the ongoing Covid19 pandemic which, through the highly asymmetrical impacts on customer segments and industrial sectors, makes the forward-looking and macroeconomic assessment of the sectors risk even more relevant.
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