This research project aims at providing answers to these two questions by focusing on two examples in point. First, how do different bank business models impact the development of local areas? Second, how does bank internationalization affect systemic risk? Providing evidence on these two questions requires access to a large number of high quality data on banks¿ balance sheets and income statements together with local economic indicators. While the latter are easily available for European countries, financial institutions data are not freely available for banks in the European Union. Driven by these concerns in data availability, I choose to focus my project on the USA.
Upon completion of the project, I will have gained the following skills:
- Deep understanding of banks¿ business models, liquidity and risk management
- Robust skills in quantitative financial and banking research
- In depth understanding of economic and financial linkages
- In depth understanding of systemic risk and its drivers
In turn, the projects results can provide the basis for policy recommendations in the following fields and for the following actors:
- Small and medium sized companies access to finance and regional development agencies, in as far as the relation between bank business models and local development is concerned
- Banks¿ management and regulation agencies in as far as internationalization, competition and systemic risk are concerned
Moreover, the model and the data used to assess the contribution of international activities to systemic risks can be directly modified to answer a no less relevant question for banking and financial policy, namely, whether competition in the banking sector affects banks¿ contribution to systemic risk. The literature on the competition financial stability nexus provides no clear-cut answer on the effect of competition on banks¿ risk. Under the competition stability hypothesis, increased competition in banking enhances financial stability, by lowering borrowers¿ risk (Boyd and De Nicoló 2005). On the other hand, under the competition fragility hypothesis increased competition in the banking sector erodes margins and leads to increased risk taking by the financial sector (Boyd et al. 2007).