In the context of the initiatives under the Capital Markets Union action plan, the JRC has provided analyses on a variety of topics of relevance in the understanding of bottlenecks hindering as well as factors enabling full financial integration in Europe. Examples are the assessment of the cost of withholding taxes on cross-border portfolio investment, the analysis of the venture capital markets and the evaluation of firm financial vulnerabilities in the wake of the COVID-19 shock.
The JRC also supports partner DGs in the effort of assessing risks for the financial sector, based on statistical analyses, as well as computational and econometric models. The JRC research agenda covers the functioning of financial markets, as well as financial institutions and related micro- and macro-prudential tools.
Finally, since the launch of the EC Action Plan on Financing Sustainable Growth in 2018, the JRC has provided scientific evidence supporting the development of the EU Sustainable Finance framework, in relation to both the financing sustainable activities and the resilience of the financial system to sustainability-related risks. In parallel, the JRC is also developing research on challenges related to Digital Finance, such as fintech, cryptoassets and central bank digital currencies.
The JRC is conducting research on modelling the links between sovereigns and banks, contagion channels spreading risks in the financial sectors and, among others, provides scientific evidence on the need to complete and enhance the Banking Union to preserve the functioning of the financial system and its support the real economy.
At the centre of JRC’s research and analysis is the SYstemic Model of Banking Originated Losses (SYMBOL), which was developed by the JRC, in cooperation with the Directorate-General Internal Market and Services and academics, to assess the impact of EC legislative proposals in the field of banking regulation. SYMBOL simulates potential crises in the banking sector under various assumptions, and allows assessing the cumulative effects of different regulatory measures (e.g. higher capital requirements, strengthened deposit insurance, and introduction of resolution funds) and their most effective combinations.
JRC contributed to several Commission initiatives with quantitative analyses for assessing the impact of the implementing (revised) financial legislations. Notably:
- Impact Assessments of the Directive on Deposit Guarantee Schemes (2010) to enhance the protection of the savings of the European citizens;
- EC Legislative package on Capital Requirements (CRD4,CRR4, 2011) to strengthen banks’ capital requirements in line with Basel III international standards;
- Proposal for a new EU framework for Crisis Management and Bank Resolution (2012), to orderly resolve banks in distress and preserve market stability;
- Proposal for a Single Resolution Mechanism (2013) to regulate and supervise the financial sector in a more integrated market, and to break the vicious circle between banks and their sovereigns via the banking union;
- Proposal for a Regulation on structural measures improving the resilience of EU credit institutions (2014) allowing the Commission to assess the rules for selecting banks that would be candidates for structural separation, based on their contributions to systemic risk.
- Economic Review of the Financial Regulatory Agenda (2014) to assess the cumulative impact of the legislative measures to forestall future crises;
- Second level legislation (2015) to define banks’ contributions to the resolution funds;
- Fundamental Review of the Trading Book (2016)to quantify the reduction in losses created in case of a banking crisis, under changes in capital requirements.
- The proposal for the establishment of a single European Deposit Insurance Scheme (2015).
- Impact Assessment (2021) Impact Assessment accompanying a proposal for a review of the insurance regulatory framework to estimate the loss distribution and funding needs of Insurance Guarantee Schemes under different policy options regarding scope, nature of intervention and coverage.
Recently, the JRC worked on financial stability implications from a diversification of exposures to sovereigns in European banks and from the introduction of a European Safe Asset. In particular, the JRC’s analyses allowed to identify the direct and indirect channels through which banks and sovereigns interact, and that can give rise to feedback loops between the two sectors.
Currently, the JRC is contributing to the discussion on the completion of the banking union and to the forthcoming review of the EU crisis management and deposits insurance framework together with Directorate-General Financial Stability, Financial Services and Capital Markets Union.
Since 2011, the JRC has been using the SYMBOL model to estimate the potential impact of banking losses on public finances, helping the Directorate-General Economic and Financial Affairs assess the impact of the implemented banking regulation on public debt and thus allow to investigate the ability of governments to finance their current debts and expected expenditures. Among others:
- Fiscal Sustainability Report 2021
- Debt sustainability monitor 2019
- Banking Stress Scenarios for Public Debt Projections 2015.
A recent strand of research looks at the use of sustainable debt instruments, e.g. green bonds, by national and sub-national governments. With green budgeting gaining momentum in public financial management, the JRC is leveraging its expertise on the analysis of sustainable capital markets to examine the challenges and opportunities from such innovative instruments to finance public expenditure aimed at reaching the Sustainable Development Goals and the Green Deal targets, as well as providing adequate resources for climate change adaptation.
Firm financing and financial vulnerabilities
In the recent years, the JRC has built a solid expertise on the use of firm-level data and micro-econometric modelling in support to the policymaking of partner Directorate Generals, such as Economic and Financial Affairs, Taxation and Customs Union, Financial Stability, Financial Services and Capital Markets Union. With new challenges materializing just as the economy was recovering from the pandemic shock, financial fragility and vulnerabilities of the real economy remain a source of concern. Aside from the COVID-19 pandemic, the corporate sector also faces broader challenges related to the structural transformations that the green and digital transition, and mounting climate risks, are posing.
Against this backdrop, the JRC makes use of firm-level data to examine relevant aspects of corporate financial vulnerabilities and their implications for policy design. Recent analyses look for instance at the determinants of firm bankruptcy, and at the role of efficiency in insolvency procedures across the EU; at firm resilience and performance after natural disasters (flooding); at the cost of credit for small and medium enterprises (SMEs) in the aftermath of climate-related natural hazards.
Alessi L., Di Girolamo F.E., Petracco-Giudici M., Resilience in the EU banking sector and beyond, In Marwa Elnahass and Sabri Boubaker (editors), Banking Resilience and Global Financial Stability, World Scientific Publishing, forthcoming
Alessi,L and Bruno, B. and Carletti E. and Neugebauer, K. and Wolfskeil,I. Cover your assets: non-performing loans and coverage ratios in Europe, Economic Policy, Volume 36, Issue 108, October 2021, Pages 685–733
Alessi, L. and Detken, C., Identifying excessive credit growth and leverage, JOURNAL OF FINANCIAL STABILITY, ISSN 1572-3089, 35, 2018, p. 215-225, JRC106988.
Alessi, L. and Kerssenfischer, M., The Response of Asset Prices to Monetary Policy Shocks: Stronger Than Thought, JOURNAL OF APPLIED ECONOMETRICS, ISSN 0883-7252 (online), 34 (5), 2019, p. 661-672, JRC116037.
Bellia, M., Calès, L., Frattarolo, L., Maerean, A., Monteiro, D., Petracco Giudici, M. and Vogel, L., The Sovereign-Bank Nexus in the Euro Area: Financial and Real Channels, (122), p. 5-28, ISBN 978-92-76-11190-0 (online), ISSN 2443-8022 (online), 2019
Bellia, M., Maccaferri, S. and Schich, S., Limiting Too-Big-to-Fail: market reactions to policy announcements and actions, JOURNAL OF BANKING REGULATION, 2021, ISSN 1745-6452 (online), JRC125590.
Bellia, M. and Maccaferri, S., Evaluation of the effects of too-big-to-fail reforms - Technical Appendix - Section 3.8. Bank bail-in events: an EU event study, Financial Stability Board, Evaluation of the effects of too-big-to-fail reforms. Consultation Report, 2020, JRC121464.
Bellucci, A., Gucciardi, G. and Nepelski, D. (2021), Venture Capital in Europe. Evidence-based insights about Venture Capitalists and venture capital-backed firms, JRC Working Paper Series, JRC122885.
Benczur, P., Cannas, G., Cariboni, J., Di Girolamo, F., Maccaferri, S. and Petracco Giudici, M., Evaluating the effectiveness of the new EU bank regulatory framework: a farewell to bail-out?, Journal of financial stability, 33, 2017, p. 207-223, ISSN 1572-3089.
Calò, S., Gregori, W., Petracco Giudici, M. and Rancan, M., Has the Comprehensive Assessment made the European financial system more resilient, JOURNAL OF FINANCIAL SERVICES RESEARCH, ISSN 0920-8550 (online), 2022, JRC126486.
Campolongo, F., Cariboni, J., Ndacyayisenga N., Pagano A., Banks under X-rays: business model choices and trading. Journal of Financial Economic Policy, 2015
Campolongo F, Joensson B, Schoutens W. Quantitative Assessment of Securitisation Deals. Springer; 2013. JRC75172
Cariboni J, Pagano A, Perrotta D, Torti F. Robust Clustering of EU Banking Data. Advances in Statistical Models for Data Analysis; Springer; 2015. p. 17-25. JRC97752
Cariboni, J., Fontana, A., Langedijk, S., Maccaferri, S., Pagano, A., Petracco Giudici, M., Rancan .M., Sebastian S.; Reducing and sharing the burden of bank failures, OECD Journal: Financial Market Trends, Vol 2015, issue 2, 2016, ISSN: 19952872 (online)
Corcuera J, De Spiegeleer J, Fajardo J, Joensson B, Schoutens W, Valdivia A. Close form pricing formulas for Coupon Cancellable CoCos. JOURNAL OF BANKING and FINANCE 42; 2014. p. 339-351. JRC80482
De Lisa, R. and Zedda S. and Vallascas, F. and Campolongo, F. and Marchesi, M. Modelling deposit insurance scheme losses in a Basel 2 framework. Journal of Financial Services Research, 40(3):123–141, 2011.
Di Girolamo F; Campolongo F; De Spiegeleer J; Schoutens W. Contingent Conversion Convertible Bond: New avenue to raise bank capital. INTERNATIONAL JOURNAL OF FINANCIAL ENGINEERING 4 (1); 2017. p. 1750001. JRC100428
Di Girolamo F, Joensson B, Campolongo F, Schoutens W. Global Structured Finance Rating. In: Roesch D, Scheule H, editors. Credit securitisations and derivatives. John Wiley and Sons Ltd; 2013. p. 187-206. JRC84740
Di Girolamo F, Joensson B, Campolongo F, Schoutens W. Sense and Sensitivity: An Input Space Odyssey for Asset-Backed Security Ratings. International Journal of Financial Research 3 (4); 2012. p. 46-68. JRC78483
Di Girolamo, F., Pagano, A. and Petracco Giudici, M., Does CRDIV provide an efficient way to deal with banks` simultaneous defaults?, In: Journal of Financial Management Markets and Institutions, 2017, ISSN 2282-717X, 5 (2), p. 193-216, JRC103516.
Fatica, S., Heynderickx, W. And Pagano, A., Banks, Debt And Risk: Assessing The Spillovers Of Corporate Taxes, Economic Inquiry, 2020, vol. 58(2), pages 1023-1044, April.Fatica, S. and Gregori, W. How much profit shifting do European banks do?, Economic Modelling, 2020, Elsevier, vol. 90(C), pages 536-551.
Fatica, S., Oliviero, T. and Rancan. M. On the determinants of corporate default. Evidence from EU-27. JRC Working Paper in Economics and Finance, forthcoming.
Gregori, W. and Sacchi, A., Has the Grexit news affected euro area financial markets?, NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE, ISSN 1062-9408 (online), 49, 2019, p. 71-84, JRC109569.
Heynderickx W; Cariboni J; Petracco Giudici M. Drivers behind the changes in European banks’ capital ratios: A descriptive analysis. JRC Working Papers in Economics and Finance; Publications office of the european union; 2016. JRC103814
Heynderickx W; Cariboni J; Schoutens W; Smits B. The Relationship between Risk-Neutral and Actual default probabilities: the Credit Risk Premium. APPLIED ECONOMICS 48 (42); 2016. p. 4066-4081. JRC95407
Hordijk, L. and Kancs, D., editor(s), Kok, C., Ongena, S., Pelizzon, L., Cariboni, J., Heynderickx, W., Maccaferri, S., Pagano, A. and Petracco Giudici, M., Review of the SYMBOL model, EUR 29233 EN, Publications Office of the European Union, Luxembourg, 2018, ISBN 978-92-79-85925-0 (pdf), doi:10.2760/607271 (online). JRC111667
Ilut C; Benczur P. Evidence for Relational Contracts in Sovereign Bank Lending. JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION 14 (2); 2016. p. 375-404. JRC92479
Langedijk, S., Monokrousos, G. and Papanagiotou, E., Benchmarking Liquidity Proxies: The Case of EU Sovereign Bonds, INTERNATIONAL REVIEW OF ECONOMICS and FINANCE, ISSN 1059-0560, 56, 2018, p. 321-329, JRC91068.
Maccaferi S, Cariboni J, Schoutens W. Lévy Processes and the Financial Crisis: Can We Design a More Effective Deposit Protection?. International Journal of Financial Research 4 (1); 2013. p. 5-28. JRC84680
Muresano Caceres R; Pagano A. Adapting and Optimizing the Systemic Model of Banking Originated Losses (SYMBOL) Tool to the Multi-core Architecture. COMPUTATIONAL ECONOMICS 48 (2); 2016. p. 253-280. JRC90904
Peltonen, T., Rancan, M. and Sarlin, P., Interconnectedness of the banking sector as a vulnerability to crises, INTERNATIONAL JOURNAL OF FINANCE and ECONOMICS, ISSN 1076-9307 (online), 24 (2), 2019, p. 963-990, JRC113224.
Rosati, N., Bellia, M., Verga Matos, P. and Oliveira, V., Ratings matter: announcements in times of crisis and the dynamics of stock markets, JOURNAL OF INTERNATIONAL FINANCIAL MARKETS INSTITUTIONS \and MONEY, ISSN 1042-4431 (online), 64, 2020, p. 101166, JRC115173.
Scheicher M, Fontana A. An Analysis of Euro Area Sovereign CDS and their Relation with Government Bonds. JOURNAL OF BANKING and FINANCE 62; 2016. p. 126-140. JRC98138
Zedda S., Cannas G., Analysis of banks’ systemic risk contribution and contagion determinants through the leave-one-out approach, Journal of Banking and Finance, Vol 112, 2020, ISSN 0378-426