Contributions published at Banking (Claire Célérier)

This paper investigates the motives for financial complexity by focusing on a large market of investment products exclusively targeted to households. We develop a robust measure of complexity by performing a text analysis of the term sheets of 55,000 retail structured products issued in 17 European countries since 2002. We first find that the complexity of structured products has significantly increased over the period 2002-2010. Second, calculating the fair value of a subsample of products, we show that relatively more complex products have higher markups. Third, the headline rate offered by a product is an increasing function of its complexity. Fourth, distributors targeting low-income investors, such as savings banks, offer relatively more complex products. Fifth, competition amplifies rather than mitigates the migration towards higher complexity. These findings are diffcult to fully reconcile with a completing market motive for financial complexity, while being more consistent with banks catering to yield seeking investors, or developing obfuscation strategies.

The shadow banking system may play an important role in the financial system by increasing its efficiency and improving its functioning. This low regulated channel of credit intermediation may contribute to provide credit to the real economy. Moreover, shadow banking through securitization-based credit intermediation has the potential to improve risk-sharing in the economy. This parallel banking system also provides stable and liquid investment opportunities for institutional investors and high-net-worth retail investors. However, the 2008 financial crisis shed some light on the risks associated to the shadow banking system, particularly in terms of financial stability. Shadow banking may in particular contribute to an increase in systemic risk. Hence, the 2008 financial crisis shows how runs on shadow banking entities can propagate to the whole financial system, including regulated banks, through different contagion channels.

This bachelor thesis models and subsequently evaluates a historically simulated Value at Risk (VaR) in times of the financial crisis 2007. The VaR calculations of the SMI-emulated portfolio follow the minimum requirements of the Basel II Accords. Comparisons between predicted maximum losses and actual changes in portfolio value provide information about the risk measure's reliability during abnormal market movements. A backtesting method verifies the results and gives evidence of strengths or weaknesses of the model. The prefixed literature review helps to interpret the outcome and to reconsider reasons and causes of potential deviations. It includes mathematical and statistical background knowledge to the different VaR approaches along with general theoretical considerations of the Value at Risk and risk measures at large. It maintains a synopsis of advantages and disadvantages in the practical dealings with risk measures and provides an outlook for future developments in that field.

Finance, Income

We empirically test the hypothesis that relatively high returns to talent explain the wage premium for working in finance. We exploit a specificity of the French educational system to build a precise measure of talent that we match with compensation data obtained from an educational elite. Using this measure, we show wage returns to talent to be three times higher in the finance industry than in the rest of the economy. This greater sensitivity to talent almost fully explains the level of the finance wage premium, its evolution since the 1980s, and, at the individual level, the pay increase workers obtain when joining the finance industry. Finally, talented workers receive a larger share of variable compensation, and even more so in the finance industry.

This paper provides evidence that supply-side factors significantly drive the high share of unbanked households. Using interstate branching deregulation in the U.S. after 1994 as an exogenous shock, we show that an increase in bank competition is associated with a large drop in the share of unbanked households. The effect is even stronger for populations that are more likely to be rationed by banks, such as black households living in ``high racial bias'' states. The improved access to bank accounts leads to higher savings rates but does not translate to higher levels of indebtedness.

A recent study by Claire Célérier and Boris Vallée finds that the French finance industry compensates employees largely according to how talented they are. Other high-paying industries? Not so much.

In the aftermath of the financial crisis of 2007-2008, governments around the world questioned whether the present regulatory requirements of Basel II are sufficient. In winter 2010, the Basel Committee on Banking Supervision released Basel III as a framework for the international banking regulation to compensate for the weaknesses of previous frameworks. In the meantime, the Federal Council in Switzerland established a Commission of Experts to examine the economic risks posed by systematic relevant companies. Their proposal of solutions to limit the TBTF-problem was followed by several announcements that indicated higher capital requirements for the major banking institutions in Switzerland. This thesis reseraches the impact of such announcements on the stock prices of UBS and Credit Suisse. The findings show no significant abnormal return patterns of the stock prices during the announcement of higher capital requirements in Switzerland. This result corresponds with the M&M propositions. The acceptance of cintingent convertible capital in the regulatory requirements in Switzerland reduces the potential cost for banks. This decision facilitates the transition for the financial institutions into a tighter regulated environment but inherits social cost for the banks benefits in form of tax shield and safety net for the banks.

There is an urgent need to understand why many households in the US do not hold a bank account. This column argues that supply-side factors – standard bank practices that ration certain households – play a role in this. The evidence comes from the staggered interstate branching deregulation after 1994 that provides an exogenous shock on bank competition. Further findings suggest that access to bank accounts improves access to credit without translating into higher ratios of debt to income.