the effect of The amplifier of the risk to the banks investment in securities Level3 – i.e. those securities, such as many derivative instruments that do not have a reference market to determine the value – is much more high compared to the banks that concentrate their investments in loans to customers (firms and households). For each percentage point of increase in the activity of securities in Level 3, the rate of risk increases by 2.1 percentage points. The same increase in loans to customers has an effect even inversely proportional, with a risk reduction of 0.2 percentage points. Is the conclusion that an analysis of the office for the study of Abi, in the context of the necklace the Themes of Economy and F inance, which required several months of work and that it has been made known yesterday. The output is not random, and coincides with a delicate moment for the Italian banks, in particular to Mps, put the destination to the needs of strengthening the assets related to the outcome of the stress tests. Test the rules of which are inflected by the Ecb and by the Eba and which are particularly severe, in terms of capital absorption for the banks that grant credit to businesses and households and are significantly less for those who invest in derivatives.
The analysis of Abi, in truth, it is not the first to arrive at these conclusions. Since the Enron collapse (2001) it was found that the greater the exposure of an enterprise, also not banking on instruments the value of which is entrusted to internal valuation models, and therefore leave us with a relative margin of discretion, the greater the risk assumed. A study that was conducted in 2015 on the 737 international banks just referring to the asset Level 3 has arrived at similar findings. The choice of Abi was to focus on a panel of 124 european banks, of which 94 subject to european supervision (Ssm). And again, the research department of the banking Association has made use of an indicator accounting, the Z score, which refers to balance sheet items, to measure the credit risk, and the lower this indicator, the higher the probability of failure of the enterprise. The indicator is used in a template that takes a reference variable bank – drawn from the balance sheets of t he european banks in the period 2013-2014 – and macro data related, for example, of the Gdp, and the sovereign risk of the countries. The study demonstrated the existence of a negative relationship between the increase of the Level3 and the Z score of the individual bank, for which more increases the proportion invested in the asset illiquid, the lower the Z score.
If to this evidence we add the fact that the banks with the less traditionally have a higher share of instruments illiquid in their budgets you can imagine, if the equation calculated from the Abi reveals to be well-founded, where he focused the credit risk in Europe. The relationship between activity level 3, and capital is equal to 20.5 percent for the French banks, to 34.5% for the German ones, to 25.4 per cent for the british, and 15.1% for the Italian ones.
“The study intends to be a contribution to the debate at european level on the stress test, view next appointments for the revision of the Basel rules and european rules on banks, including the directive Brrd – explains Gianfranco Torriero, vice-general director of the Abi -. The model adopted for the stress tests leaves open, as is well known, many doubts. The result can vary significantly depending on the way in which is introduced an element of stress in the base scenario. The hope is that you will have a different balance in the context of evaluation systems. The assessment of risk is a factor that conditions in the competitive european, because if it is required, the capital requirement increased for loans to the customers with respect to instruments that are not liquids, it poses a constraint to increased profitability for the institute that supports the economy and encourages the activities on the derivatives, which, however, should not be required because it ha s an important function in the financial system”. Our want to be a tip, concludes Torriero, “to the regulator for calculations in depth the multiple effects that the assumption of risk, and its costs, can result in systems are now very complex”.
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