Regulatory Arbitrage in EU Banking: Do Business Models Matter?

International Research Centre on Cooperative Finanace Working Paper Jul 2016

15 Pages Posted: 31 Aug 2016

See all articles by Rym Ayadi

Rym Ayadi

HEC Montreal

Giovanni Ferri

LUMSA University

Valerio Pesic

University of Rome I - Department of Management

Date Written: July 15, 2016

Abstract

This paper has three main aims. First, by applying the Ayadi et al. (2016) approach, we provide fresh evidence of different levels of bank risk (measured by the distance to default), considering the possible specificities across business models of European banking. Second, we try to explain those differences via the adoption of IRB and RWA dispersion, which raises the suspicion of regulatory arbitrage to a different extent across bank business models. Third, we explore whether, and to what extent, the degree of regulatory arbitrage varies across bank business models. Our findings show that one of the five business models identified by Ayadi et al. (2016) is deviant. This is the case for the banks classified as Diversified Retail type 2 which seem to be mutants and systematically engage in regulatory arbitrage. Our conclusion is that bank business models matter in risk assessment and regulation.

Keywords: Regulation, Europe, Financial Crisis, Bank, Business Models, Cooperative

Suggested Citation

Ayadi, Rym and Ferri, Giovanni and Pesic, Valerio, Regulatory Arbitrage in EU Banking: Do Business Models Matter? (July 15, 2016). International Research Centre on Cooperative Finanace Working Paper Jul 2016. Available at SSRN: https://ssrn.com/abstract=2829027 or http://dx.doi.org/10.2139/ssrn.2829027

Rym Ayadi (Contact Author)

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

Giovanni Ferri

LUMSA University ( email )

Via della Traspontina
Roma, Rome 00192
Italy

HOME PAGE: http://www.lumsa.it/giovanni-ferri

Valerio Pesic

University of Rome I - Department of Management ( email )

Via del Castro Laurenziano, 9
Rome, 00161
Italy

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