Publications

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BOOKS

Banking Business Models: Definition, Analytical Framework and Financial Stability Assessment

25/04/2019

Palgrave McMillan, 25th April, 2019

This book is a result of several years of research to provide readers with a novel and comprehensive analysis on business models in banking, essential to understanding bank businesses pre- and post- financial crisis and how they evolve in the financial system. This book will provide depositors, creditors, credit rating agencies, investors, regulators, supervisors, and other market participants with a comprehensive analytical framework and analysis to better understand the nature of risk attached to the bank business models and its contribution to systemic risk throughout the economic cycle. The book will also guide post-graduate students and researchers delving into this topic.

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Academic Papers

Business Models in Finance: Risk and Evolution: Economic Notes: Vol 49, No 2

Rym Ayadi, Claudio Giannotti, Valerio Pesic
15/06/2020

Prof. Rym Ayadi co-edited the special issue of the Academic Journal “Economic Notes”, for July 2020, with the title “Business Models in Finance: Risk and Evolution”, along with Claudio Giannotti and Valerio Pesic.

The editors of this special issues also co-authored the introductory article of the journal, under the same title, i.e “Business Models in Finance: Risk and Evolution”

The role of business model diversity has received increasing attention in the banking and finance literature. That was partly a natural response to the fallouts of the Global Financial Crisis of 2007-2009 when some major financial groups – in particular those with excessively risky business models – either went bankrupt or needed to be saved through taxpayer-funded government bailouts. Though initially mute on business models, the regulatory overhaul to restore eroded market confidence and to safeguard financial stability paved new paths where business model considerations have gained growing interest – e.g., in the Supervisory Review and Evaluation Process (SREP) and in stress testing of banks. More recently, a new variant is trying to understand the impacts of fintech on how finance is organised and regulated. Moving from this perspective, there is still space for investigating the potential effects of those changes in regulation, technology and competition on the sustainability of profitability of different business models. Against this background, this Special Issue of Economic Notes collects seven papers from scholars addressing the mentioned issues.

The Economic Notes presents key issues in the fields of banking, finance and monetary economics. Throughout the years, the journal has earned a reputation for open debate and interdisciplinary receptiveness. It publishes quality papers from academics and researchers as well as executives working in financial institutions, firms and the public sector.

Please visit https://onlinelibrary.wiley.com/toc/14680300/2020/49/2


Regulatory Arbitrage in EU Banking: Do Business Models Matter?

Rym Ayadi, Giovanni Ferri, Valerio Pesic
15/07/2016

This paper has three main aims. First, by applying the Ayadi et al. (2016) approach, we provide fresh evidence of different levels of bank risk (measured by the distance to default), considering the possible specificities across business models of European banking. Second, we try to explain those differences via the adoption of IRB and RWA dispersion, which raises the suspicion of regulatory arbitrage to a different extent across bank business models. Third, we explore whether, and to what extent, the degree of regulatory arbitrage varies across bank business models. Our findings show that one of the five business models identified by Ayadi et al. (2016) is deviant. This is the case for the banks classified as Diversified Retail type 2 which seem to be mutants and systematically engage in regulatory arbitrage. Our conclusion is that bank business models matter in risk assessment and regulation.


policy papers

Bank business models in Europe: why does it matter for the future of regulation and resolution?

Rym Ayadi
16/07/2016

In this changing context of evolving market structures and regulations, the bank business models analysis can provide market participants, depositors, creditors, regulators and supervisors with a useful tool to better understand the nature of risk attached to each bank business model and its contribution to systemic risk throughout the economic cycle. This policy paper explains the relevance of the business models analysis in banking for the future of regulation and resolution. First, it provides a quick background, a snapshot of the definition, methodology and findings relating to a comprehensive sample of European banks, and secondly, it delves into the importance of bank business models analysis for regulation and resolution in Europe.


Studies

Banking Business Models (BBM) Monitor 2019 Europe

Rym Ayadi, Doriana Cucinelli, Willem Pieter De Groen
05/12/2019

The Banking Business Models (BBM) Monitor 2019 Europe is the European edition of the bank business models analysis, which is part of the Global Monitor of banks and credit unions business models. The Global Monitor covers Europe, United States of America and Canada. More countries will be added subject to data availability.

The BBM Monitor 2019 for Europe identifies the business models of 3,287 banks covering more than 95% of assets of the European Union plus EFTA countries from 2005 to 2017, which accounts for 25,402 bank-year observations. Using a unique definition and a careful selection of multi- dimensional attributes and the development of state-of-the-art clustering methodologies, the BBM Monitor provides a coherent approach to analyse banks and to monitor their behaviour over time. The Monitor covers issues such as interaction with ownership structures, size, internationalisation, migration, financial performance and operational efficiency, contribution to the real economy, risk, resilience, robustness and resolution.

The BBM Monitor is geared towards bank practitioners, policy makers, regulators, supervisors and academics who are interested in independent research, analysis and expert views on the banking sector in Europe.

The BBM Monitor and Results will be updated annually and potentially extended, subject to data availability. The business model identification results of the BBM Monitor 2019 for Europe are available for all the bank-year observations upon request.


Bank and Credit Union Business Models in the United States

Rym Ayadi, Michel Keoula, Willem Pieter De Groen, Walid Mathlouthi, Ibtihel Sassi
30/11/2017

This study comes in response to the continuing evolution of market structures and regulatory overhaul since the financial crisis of 2007-2009 in the US. The banking sector has largely suffered after the collapse of Lehman Brothers in September 2008. The initial context of decades of deregulation has been followed by the Dodd-Frank Act to respond to the overly damaging 2007-2009 global financial crisis, with the aim of safeguarding financial stability and putting an end to government bailouts.

This first investigation into the bank and credit union business models for the United States, offers an extensive insight into 10,352 banks and 10,392 credit unions, which respectively account for almost all total banking assets of the country and more than 80% of the total assets of credit unions. Using regulatory data from 2000 to 2014, the two samples of 108,226 bank-year observations and 115,516 credit-union-year observations are each clustered into distinct bank and credit union business models, using a novel definition and applying a robust clustering methodology. The definition uses the activity and funding profiles of a bank or a credit union based on balance sheet indicators.

Four bank business models and three credit union business models are identified. The study proceeds then by thorough assessments of the interaction between business models and size, as well as the migration, financial performance, contribution to the real economy, risk and response to regulation of US banks and credit unions, using a rich palette of indicators.


Regulatory Arbitrage in EU Banking: Do Business Models Matter?

Rym Ayadi, Giovanni Ferri, Valerio Pesic
15/07/2016

This paper has three main aims. First, by applying the Ayadi et al. (2016) approach, we provide fresh evidence of different levels of bank risk (measured by the distance to default), considering the possible specificities across business models of European banking. Second, we try to explain those differences via the adoption of IRB and RWA dispersion, which raises the suspicion of regulatory arbitrage to a different extent across bank business models. Third, we explore whether, and to what extent, the degree of regulatory arbitrage varies across bank business models. Our findings show that one of the five business models identified by Ayadi et al. (2016) is deviant. This is the case for the banks classified as Diversified Retail type 2 which seem to be mutants and systematically engage in regulatory arbitrage. Our conclusion is that bank business models matter in risk assessment and regulation.


Banking Business Models Monitor 2015 EUROPE

Rym Ayadi, Willem Pieter De Groen, Ibtihel Sassi, Walid Mathlouthi, Harol Rey, Olivier Aubry
14/01/2016

In the context of evolving market structures and regulations, where fundamental changes keep applying to the European Banking Sector, especially since the financial crisis of 2007-2009, the banks’ business models analysis provides market participants, depositors, creditors, regulators and supervisors with a useful tool to better understand the nature of risk attached to each bank business model and its contribution to systemic risk throughout the economic cycle. The 2015 Business Models Monitor of the European banking sector assesses the banking sector structure in light of the changing economic, legislative and supervisory environment.

With the objective of covering the entire European banking sector, the 2015 Business Model Monitor includes 2,528 banking groups and subsidiaries of non-European banks, which account for more than 95% of the EEA and Swiss banking assets. The Monitor also uses a unique definition and a novel clustering model featuring SAS programming. For the analysis, the 13,040 bank-year observations were clustered into five broad categories: focused retail, diversified retail (Type I and Type II), wholesale and investment banks.


Banking Business Models Monitor 2014: Europe

Rym Ayadi, Willem Pieter De Groen
14/10/2014

CEPS and the International Observatory on Financial Services Cooperatives (IOFSC) at HEC Montreal have initiated an annual monitoring exercise on banking business models in the EU. Based on their balance sheet structures, 147 European banks that account for more than 80% of the industry assets were categorised in four business models. The Monitor emphasises the ownership structures and assesses the financial and economic performance, resilience and robustness, before, during and after the financial and economic crises across retail diversified-, retail focused-, investment-, and wholesale oriented banks. Inter alia, this edition of the Monitor finds that banks that engage more in traditional retail banking activities with a mix of funding sources fared well as compared to other bank models during the different phases of the crisis.

The authors are Rym Ayadi, Senior Fellow at CEPS and Professor HEC Montreal, and Willem Pieter De Groen, Researcher at CEPS. Statistical support and other contributions were provided by Marie-Josée Lapointe, André Michelet, Harol Rey, Ibtihel Sassi and Cristina Tita, members of the research team at the International Observatory on Financial Services Cooperatives (IOFSC), HEC Montreal.


Regulation of European Banks and Business Models: Towards a new paradigm?

Rym Ayadi, Emrah Arbak, Willem Pieter De Groen
26/06/2012

Amidst talks of establishing an EU-wide banking union, the recent changes in the regulatory framework and the rethinking of the future of European banking structure, the future of EU bank regulation is inextricably linked to banks’ business models. Using a sample of over 70 banks, which overlaps with those subjected to the EBA’s 2011 stress tests, this report emphasizes the key regulatory gaps that emerge from a comprehensive analysis of the soundness and performance of bank business models and provides policy-makers with guidance to reinforce the evolving regulatory framework in European banking.

The study was commissioned by the Greens-European Free Alliance Political Group in the European Parliament and directed by Dr. Rym Ayadi, Senior Research Fellow and Head of the Financial Institutions and Prudential Policy research unit at CEPS. The research team included Emrah Arbak, Researcher and Willem Pieter de Groen, Research Assistant in the same unit at CEPS, with a contribution from David T. Llewellyn of Loughborough University, the Cass Business School in London and the Vienna University of Economics and Business Administration


Business Models in European Banking: A pre-and post-crisis screening

Rym Ayadi, Emrah Arbak, Willem Pieter De Groen
20/09/2011

The next few years will be critical for Europe’s banking industry as it faces a number of financial sector reforms that will have a decisive impact on the dominant practices and business models followed across the EU. This timely report presents the results of the first screening exercise conducted of the performance, stability, risk, efficiency and corporate governance of 26 major European banks, before, during and after the financial crisis, with a view to identifying key strengths and weaknesses inherent in the dominant business models in light of the upcoming regulatory changes.

The study was commissioned by the Greens-European Free Alliance Political Group in the European Parliament and directed by Dr. Rym Ayadi, Senior Research Fellow and Head of the Financial Institutions and Prudential Policy research unit at CEPS. The research team included Emrah Arbak, Researcher and Willem Pieter de Groen, Research Assistant in the same unit at CEPS. David T. Llewellyn of Loughborough University, the Cass Business School in London and the Vienna University of Economics and Business Administration contributed an overall review and written contributions, including the Foreword.


Investigating Diversity in the Banking Sector in Europe: Key Developments, Performance and Role of Cooperative Banks

Rym Ayadi, Emrah Arbak, Willem Pieter De Groen, David T. Llewellyn
14/09/2010

This book investigates the merits of a diverse banking system with a special focus on the performance and role of cooperative banks in seven European countries where they are prominent (Austria, Finland, France, Germany, Italy, the Netherlands and Spain). The theoretical and empirical arguments that are developed in this book tend to support the view that it is economically beneficial to have stakeholder-value banks with a dual bottom-line function, such as cooperative banks. For those who accept this premise, it would suggest that policy-makers should not take or support actions that could jeopardise this valuable element of the financial system in various countries in Europe and of the emerging integrated European financial system.


Investigating Diversity in the Banking Sector in Europe: The Performance and Role of Savings Banks

Rym Ayadi, Emrah Arbak, Reinhard H. Schmidt, Santiago Carbó Valverde, Francisco Rodriguez Fernandez
26/06/2009

In the aftermath of the financial crisis, the foundations of modern and innovative financial systems developed over decades have suffered serious damage. This has triggered massive state interventions and has led authorities to revamp the regulatory structures and frameworks. While many voices have called for a return to more traditional approaches to banking and finance, no one has argued the merits of diversity.

This book investigates the merits of a diverse banking system with a special focus on the performance and role of savings banks in selected European countries where they are still prominent (Austria, Germany and Spain) and where they have progressively disappeared (Belgium and Italy). The theoretical and empirical arguments that are developed in this book tend to support the view that it is economically and socially beneficial to have ‘dual bottom-line’ institutions, such as savings banks. For those who accept this premise, it would suggest that policy-makers should not take or support actions that could jeopardise this valuable element of the financial system in various countries in Europe and of the emerging integrated European financial system.


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