Recommended articles: Risk and Finance

RISK:

1. Bankers’ liability and risk taking. In order to protect the financial system from excessive risk-taking, many argue that bank managers need to have more personal liability. However, whether the liability of bank managers has a significant effect on risk-taking is an open question. This column studies a unique historical episode in which similar bankers, operating in similar institutional and economic environments, faced different degrees of personal liability, depending on the timing of their marriages, and finds that limited liability induced bankers to take more risks (VOX).
2. Basel III monitoring results published by the Basel Committee (BIS).
3. Value and resilience through better risk management. Although the risk environment is growing more perilous and costly, leading companies are blazing a path to resilience and value by embedding strategic risk capabilities throughout the organization (McKinsey).
4. Estimating Cyber Risk for the Financial Sector (IMF Blog).

FINANCE:

1. Bank performance under negative interest rates. Many countries have now adopted negative nominal interest rates. The column uses data on 5,000 banks affected by this policy to conclude that, while their net income has not fallen, strategies to increase non-interest income are unlikely to be sustainable. Therefore we cannot assume that bank performance and lending will carry on at current levels over extended periods of negative policy rates (VOX).
2. What drives local lending by global banks? Abstract: We find that the lending behaviour of global banks' subsidiaries throughout the world is more closely related to local macroeconomic conditions and their financial conditions than to those of their owner-specific counterparts. This inference is drawn from a panel dataset populated with bank-level observations from the Bankscope database. Using this database, we identify ownership structures and incorporate them into a unique methodology that identifies and compares the owner and subsidiary-specific determinants of lending. A distinctive feature of our analysis is that we use multi-dimensional country-level data from the BIS international banking statistics to account for exchange rate fluctuations and cross-border lending (BIS).
3. Liquid Alternatives: Alternative Enough? Keywords: Alternative Investments, Drivers of Value, Economics, Performance Measurement & Evaluation, Portfolio Management (CFA Blog).
4. Fintech credit markets around the world: size, drivers and policy issues. Abstract: Fintech credit has grown rapidly around the world in recent years, but its size still varies greatly across economies. Differences reflect economic development and financial market structure: the higher a country’s income and the less competitive its banking system, the larger is fintech credit activity. Fintech credit volumes are also greater in countries with less stringent banking regulation. Fintech credit offers an alternative funding source for businesses and consumers, and may improve access to credit for underserved segments. It may enhance the efficiency of financial intermediation. However, as shown by some failures and conduct problems, it also gives rise to a number of challenges for regulators. Many of these are centred on ensuring adequate consumer and investor protection. For financial stability, challenges and benefits may arise if the fintech credit sector grows further, or if banks make greater use of similar technological innovations in their credit provision (BIS paper).