4ème édition du Colloque International sur l’Écosystème Entrepreneurial: « Cultiver la résilience entrepreneuriale dans un environnement changeant »
Les Professeurs Inass EL FARISSI et Jihane AAYALE ont participé, du 29 juin au 7 juillet 2022, aux travaux de DIF 2022 Conference tenue à l’INSEEC-Lyon.
Dans le cadre de cette conférence co-organisée par John Molson School of Business-Concordia University, l’INSEEC et Jilin University, le Pr. EL FARISSI a présenté son article de recherche sur le thème : « LES MESURES du risque de crédit ».
De son côté, Pr. AAYALE a présenté un article scientifique intitulé “Financial Innovations’ Impact on Prudential Regulation of Banks : A Comparison in the BRICS and the G7 ”
Ci-après un résumé de leurs communications scientifiques :
Inass El Farissi : « LES MESURES du risque de crédit »
« Le risque de crédit, le risque de perte de crédit, est lié à l’incapacité éventuelle d’un emprunteur à honorer ses engagements. Il englobe le risque de non-recouvrement en cas de défaut et le risque de variation de la qualité du crédit. Le risque de non-recouvrement en cas de défaut implique le risque de défaut et le risque de non-recouvrement. Le risque de défaut reflète les chances de survenance du défaut. Le risque de non-recouvrement (de la valeur des sommes dues) exprime le hasard attaché au taux de recouvrement ou, de façon équivalente, à la sévérité de la perte en cas de défaut. Le risque de variation de la qualité du crédit est le risque de migration d’une classe de risque à une autre. Il représente la vraisemblance de dégradation de la qualité du crédit, avec, comme extrémité, le risque de défaut (le risque de migrer à la classe en défaut). Cet article présente les mesures générales et appliquées du risque de défaut, du risque de non-recouvrement et du risque de migration. En première partie, nous relions la probabilité de survie, la probabilité de défaut cumulée et la probabilité marginale de défaut. Nous définissons la probabilité de défaut à terme, celle conditionnée par la survie à un horizon donné. Nous spécifions la probabilité de défaut historique (réelle) et la probabilité implicite aux taux du marché (risque-neutre). Nous étudions dans ce cadre comment la structure par terme des taux de défaut peut-elle être déduite à partir de la structure par terme des taux d’intérêt. Si toute l’information est contenue dans le prix, la croyance du marché en chances de défaut serait comprise dans l’équilibre des marchés spot et forward des crédits risqués et sans risque. Nous distinguons le taux de défaut et le taux de défaut moyen des crédits et des ensembles de crédits. Nous examinons la perte espérée comme le produit de la probabilité de défaut, de l’exposition au défaut et de la perte en cas de défaut. Nous interprétons la différence entre la probabilité de défaut historique et la probabilité de défaut risque-neutre au vu de la notion de perte non-espérée. Nous précisons la relation entre la prime de risque, la perte espérée et la perte non-espérée. En seconde partie, nous approfondissons et interprétons les définitions et les mesures du risque de crédit de Moody’s, Standard & Poor’s et Fitch. Nous suggérons enfin une mesure qui concilie les avantages des mesures de Moody’s, Standard & Poor’s et Fitch tout en évitant leurs nuances. «
Mots Clés : risque de défaut, risque de non-recouvrement, risque de migration, notation, agences de notation
Classification JEL : G24
Jihane AAYALE : « Financial Innovations’ Impact on Prudential Regulation of Banks: A Comparison in the BRICS and the G7 Extended Abstract »
Keywords: Financial Innovation, Prudential Regulation, Banks, G7, BRICS, Fintech. Introduction Over the past centuries, financial innovation has proven to be an essential part of the economic landscape, democratising economic participation and shaping many financial systems, and still producing a multitude of financial products or services. The main reason for the development of banking systems, especially in the United States and in Europe, is the creation, the emergence and the diffusion of financial innovations. In recent years, the financial innovation process has developed dynamically and has benefited from simultaneous technological change. This has led to the creation of a new status quo in the international arena, due to the modification and / or planning of products, ideas, instruments and standardised processes.
Financial innovation can be defined as the act of creating new financial instruments, new financial technologies and even new markets; it can also include acts of invention (as a basis for innovation) and the distribution of new products and services, and even ideas with more efficient use and allocation of resources. (Merton, 1992) (Crane et al., 1995)
In an environment of rapid change in design and delivery of financial services, financial innovation is at the core of these constant changes, and despite their consequences, there are relatively few studies considering how prevalent the talk about their importance is. (Van Horne 1985, Miller 1986, 1992, Mayer 1986, Cooper 1986, Faulhaber and Baumol 1988, Campbell 1988: 16, Siegel 1990 Finnerty 1992; Meron Kopcke 1992 1995 1995 1996 Lea Tufano, Finnerty and Emery, 2002)
The majority of studies on financial innovation are indeed, descriptive in nature, so much so, that in 2002 Frame and White did a comprehensive review of studies related to the subject and could only find studies that they classified into 4 research categories: environmental conditions encouraging financial innovation, customers and users for innovation, diffusion, consequences such as profitability and social welfare.
Further, financial services are one of the most regulated sectors in any economy, which is mainly due to the central role of the financial system, and taking the most recent crisis as an example, financial innovations were heavily blamed for allowing to bypass prudential regulation, it comes as no surprise that regulation must never be static. It should be noted that recent attempts at regulatory reform have somewhat neglected financial innovation, mainly because financial innovation, at least over the past decade, has been used for regulatory arbitrage and tax evasion.
Today’s financial markets are characterised by rapid innovation and a changing business environment, as well as long-term changes in customer needs and profiles. The result has been a greater variety of participants, products and distribution channels. In such an environment, too detailed or overly restrictive regulatory measures can distort the allocation and pricing of financial resources and may limit the ability of financial institutions to respond to changes in the competitive environment, which may not be sprofitable or uncertain.
An example of this is the digitalisation of banks’ operations which represents undeniable advantages, allowing the improvement of user experience, the streamlining of the operational processes, or even the revolutionising the banks’ business models, Today, being digital is a necessity in order to be able to survive in a constantly changing market.
While digitalisation represents undeniable advantages, it remains true that it contains major challenges. Indeed, several authors have pointed out that digital transformation carries risks related to the use of digital technologies. Indeed, digital technologies promote the generation of data without the knowledge of individuals. The collection, sharing and analysis of this data is a risk to the user, especially when it comes to financial or other sensitive data. It is also important to highlight the fact that the difficulty in processing large volumes of data increases this privacy issue significantly with additional risks during the implementation of Cloud technologies; so, what is the role of regulation?
For several years, regulators have begun to take an interest in how banks handle and secure data, which has resulted in an increase in regulatory constraints. Given this, banks must understand the regulations to which they are subject to. The adoption of digital technologies carries risks that must be managed to drive the success of digital transformation.
The ideal approach is to strike an appropriate balance between preserving security and the strength of the system and allowing financial institutions and markets to participate actively to financial innovation. Indeed, it should be kept in mind that integrated supervision can discourage innovation. Multiple regulators can facilitate the approval of financial instruments, while an integrated regulator would require an innovative instrument to be approved by successive screens. A more nuanced approach is needed that does not unduly prevent the approval of innovative financial products.
Research Objectives
Withal, the goal here is to study the impact of Financial Innovation on prudential regulation in banks. The hope is, in engaging in this research is to fill some of the gap in the literature and in the studies on financial innovation, and to explore their impact on the financial sector’s regulation, whilst making a comparison between the BRICS (Brazil, Russia, India, China, South Africa) and the G7 countries (USA, UK, Italy, France, Germany, Japan, Canada).
A good way to address to financial innovation would be to analyse innovations case by case, in a uniform framework that takes into account the financial environment in which the innovation is introduced, the regulatory goals that have been developed for system financing, and the policy instruments that can be used to achieve those goals; in our study we proceed to classify a sample of important financial innovations and to explain their impact on regulation.
Further, we describe the elements of a fair regulatory approach to financial innovation, defined as an appropriate weighting of three of the main common goals that most regulatory frameworks share: systemic risk mitigation, good market conduct, and adequate retailer protection of borrowers and investors and other users of financial services.
It starts from a premise that financial innovations are the natural result of a competitive economy. They are neither intrinsically good nor intrinsically bad. Innovations have the ability to enable a more profitable distribution of resources and hence a higher level of capital productivity and economic growth. Many financial innovations have this effect and, for this reason, policy makers wish to have a positive attitude towards innovative activities; that is, from a presumption of profit until the detriment is proved as opposed to the reverse construction.
Ethical values should also have a role to play in the new landscape. This does not only refer to financial innovation, but also affects the mechanics of financial markets. A crisis is not the result of the violation of certain rules but the result of taking into account shortcomings, ambiguities or inefficiencies and omissions in the regulatory framework that’s applied. Therefore, crises occur « not because of the non-compliance, but despite the compliance. » Observations of this kind should guide regulatory intervention in the future.
The real question too, is what should the appropriate policy response to financial innovations be, one that still remains flexibile in accommodating the environment, including improvements to regulation, governance and supervision of internal controls of financial intermediaries, and how does financial innovation cancel out bank regulation alongst financial cycles?
Other questions come to mind which we try to answer, amongst which is the link between financial innovation, prudential regulation and industry performance, as well as the learning experience of both the BRICS and the G7 countries.
Methodology and Data
The nature of the problematic dictates a qualitative research methodology where document analysis and a review of published articles and data is currently being carried out, qualitative research has historically generated effect inducing realities, it treats a text as an empirical entity.
The data analysed in this research is secondary data collected through digital documents. The collected data was then systematically organised to be interpreted in later steps. Documents provide key insight into the research content and context, using qualitative descriptive content analysis.
References
- Bekaert, Geert, Campbell R. Harvey, Christian Lundblad, and Stephan Siegel, 2007. Global growth opportunities and market integration, Journal of Finance 62, 1081-1137.
- Campbell, J. Y., Jackson, H.E., Madrian, B. & Tufano, P. (2011) Making financial markets work for consumers. Harvard Business Review, July Is- sue. Available at: http://hbr.org/2011/07/making- financial-markets-work-for- consumers/ar/1
- Crane, D. B. et al. (1995) The global financial system: A functional perspective. Boston: Harvard Business Pres
- Finnerty, John and Douglas Emery, 2002. Corporate Securities Innovation: An Update, Journal of Applied Finance, 12 (Spring/Summer), 21-47.
- Frame, W. and Scoot and Lawrence J. White 92004), “Empirical studies of Frame W. Scott and White Lawrence J., 2004. Empirical studies of financial innovation: lots of talk, little action? Journal of Economic Literature 42, 116-144
- Frame W. Scott and White Lawrence J., 2009. Technological change, financial innovation, and diffusion in banking. Federal Reserve Bank of Atlanta working paper 2009-10. March 2009.
- Merton, R. (1992) Financial innovation and economic performance. Journal of Applied Corporate Finance, 4, pp. 12–22
- Merton, R. & Bode, Z. (1995) The global financial system, a functional perspective, chapter one: a conceptual framework for analysing the financial environment. Boston: Harvard Business School Press
- Miller, Merton H. 1986. Financial innovation: the last twenty years and the next. Journal of Finance and Quantitative Analysis 21, 459-71.
- Miller, Merton H., 1992. Financial innovation: achievements and prospects. Journal of Applied Corporate Finance 4, 4-12.
- Tufano, P. (2003) Financial innovation. In: Constantinides, G. M., Harris, M. & Stulz, R. M. eds. (2003) The handbook of the economics of finance. North Holland: Elsevier.
- Tufano, P. (in press). Just keep my money! Supporting tax-time savings with US savings bonds. American Economic Journal.
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