“Bank Business Model Migrations in Europe: Determinants and Effects” -Corporate Governance special issue of the British Journal of Management – BJM
The paper “Bank Business Model Migrations in Europe: Determinants and Effects” has been published in the Corporate Governance special issue of the British Journal of Management – BJM. The paper is part of the Bank Business Models (BBM) analysis, which was first introduced by Ayadi et al (2010).
The paper has been co-authored by Prof. Rym Ayadi, Banking Stakeholders Group of the European Banking Authority, President of the Euro-Mediterranean Economists Association – EMEA, and Honorary Professor at the Business School (former CASS), Prof. Barbara Casu, Director of the Centre for Banking Research of the Business School (formerly Cass), Prof. Paola Bongini, Professor of Banking and Finance, University of Milano-Bicocca, and Doriana Cucinelli Assistant Professor in Financial Intermediaries at University of Milano-Bicocca.
In response to post‐crisis regulatory reforms, the European banking sector has undergone significant changes that have led banks to reconsider their strategies, structures and operations. Based on a sample of over 3,000 banks from 32 European countries during the period 2010–2017, we identify banks’ business models based on cluster analysis and track their evolution. We then apply a logistic regression and find that banks with higher risk and lower profitability are more likely to change their business model. Employing a propensity score matching approach, we investigate the effect of migration on bank performance and find that changing the business model affects banks positively (i.e. migrating banks increase their profitability, stability and cost efficiency). The effect of migration differs depending on the target business model. When switches are a consequence of being acquired or motivated by regulatory compliance, the positive impact remains.
The BBM research platform was conceived by Prof. Rym Ayadi, and it was launched by EMEA in December 2019 to allow researchers working on this area to have open access to the BBM data and research. More research will target the Mediterranean and Africa.
The British Journal of Managementis a quarterly peer-reviewed academic journal. It publishes articles which are of a multi-disciplinary, interdisciplinary, and internationally significant nature, and which are committed to making a positive social impact through thoughtful scholarship. With contributions from around the globe, the journal includes empirical and methodological articles across the full range of business and management disciplines.
The paper is available at https://onlinelibrary.wiley.com/doi/10.1111/1467-8551.12437
Business Models in Finance: Risk and Evolution: Economic Notes: Vol 49, No 2
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.
Regulatory Arbitrage in EU Banking: Do Business Models Matter?
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.