2024Impact of Specifc Liquidity Shocks on the Bank’s Solvency

This study aims to demonstrate and measure the impact of liquidity shocks on a bank’s solvency, particularly when the bank lacks sufcient liquid assets. The proposed model, which extends Merton’s (1974) model, enables banks to determine the necessary level of liquid assets required to withstand various liquidity shock scenarios (including potential second-round efects) under the assumptions considered. Therefore, it can contribute to: ● Enhancing Internal Liquidity Adequacy Assessment Processes (ILAAPs): Allowing banks to manage liquidity from a solvency perspective. ● Improving the Prudential Framework: Addressing the separation of liquidity and solvency in the current regulatory approach. ● Expanding Existing Literature: Addressing the insufcient study of the impact of liquidity risk on solvency risk.
Journal of Risk Finance; SSRN
Links https://www.emerald.com/insight/content/doi/10.1108/jrf-05-2023-0124/full/htmlhttps://papers.ssrn.com/sol3/papers.cfm?abstract_id=4448154

My thesis investigated the imperfections of macroprudential stress tests from a theoretical perspective, particularly by
establishing a link with the limitations of the function that calculates regulatory capital in internal model approaches
(IRB). Additionally, I proposed a specifc stress test for concentrated credit portfolios and developed a new
methodology to refect macroeconomic shocks on banks' capital requirements using a systematic risk multi-factor
model. I also assessed the impact of a specifc liquidity stress test on a bank's solvency.

Link https://hal.science/tel-02440557/

The article analyzes the European Banking Authority (EBA) October 2023 report on the integration of environmental and social (E&S) risks under Pillar 1 (calculation of minimum capital requirements for banks). It focuses on the methodological challenges arising from the current IRB framework, particularly those related to the regulatory guidance of the “IRB Repair” program, for the consideration of E&S risks. Additionally, it proposes potential remediation strategies, such as integrating ESG risks into the calculation of economic/internal capital and imposing limits on unsustainable exposures.
Afges
Link https://www.afges.com/risques-esg-leba-publie-un-rapport-sur-le-traitement-des-risques-environnementaux-et-sociaux-dans-le-pilier

This study challenges the existing prudential framework on ESG risks. It proposes additional prudential tools, rangingfrom integrating environmental factors into the calculation of banks’ capital to imposing limits on exposures toactivities with signifcant environmental impact. The choice of measures depends on each institution’s characteristics,such as size, complexity, and ability to develop models.
BSI Economics
Link https://bsi-economics.org/quels-outils-prudentiels-pour-des-financements-bancaires-plus-durables-note/

This study focuses on analysing the efectiveness of European regulations in building a sustainable economy. It highlights sobriety as a crucial means of limiting global warming and the degradation of ecosystems and biodiversity. Specifcally, it is essential to prioritise a resilient and sustainable economy with well-being as its primary objective, even if this may lead to a decrease in fnancial returns and economic growth in the short and medium term.
BSI Economics
Link https://bsi-economics.org/les-reglements-europeens-permettront-ils-veritable-transition-vers-une-economie-durable-jd/

This study analyzes the introduction of environmental criteria and risks into banking regulations. It highlights thedecisive role of banks in steering the economy toward sustainable activities and provides an inventory of theregulatory texts that were developed at the time this article was written.
BSI Economics
Link https://bsi-economics.org/la-reglementation-bancaire-a-lheure-des-risques-environnementaux-note/

This study critically analyses the December 2017 revisions to the Basel III reform. The analysis focuses particularly onthe lack of change in the formula that banks must use to calculate regulatory capital under internal model approaches(Internal Rating-Based, IRB).
BSI Economics
Link https://bsi-economics.org/une-analyse-critique-sur-la-finalisation-de-bale-iii-note/