Lowering the impact of banking crises in European economies

Description

Francesco Vallascas, Professor of Banking at University of Leeds, has played a pivotal role in a team of researchers who have worked in collaboration with the European Commission Joint Research Centre (JRC) since 2006.  

The aim of the research team was to identify tools that can contribute to the effective design of banking regulation in order to ensure a stable banking system that benefits society. 

The underpinning research was carried out by a research team which included Vallascas, academics from the University of Cagliari, members of the European Commission from the DG FISMA (The Directorate‑General for Financial Stability, Financial Services and Capital Markets Union) and Francesca Campolongo, the Head of the ‘Finance & Economy’ Unit of the JRC.  

The mathematical model they developed later came to be known as the SYMBOL (Systemic Model of Banking Originated Losses) model, a name given to it by the European Commission. 

Vallascas further developed investigations into the potential benefits and costs related to the use of the internal ratings-based approach (IRB) models by banks under the Basel II framework. Furthermore, Vallascas with Kevin Keasey, Professor of Financial Services at Leeds, has extended the understanding of the importance of the capital regulatory design by looking at the modifications of the Basel II regulatory framework post the global financial crisis, known as Basel III, and drawing conclusions on the effects of these changes on financial stability.

Impact

The SYMBOL model which simulates the effects of bank failures in a financial system has been widely used by the European Commission and has had considerable influence on banking regulation in the European Union.  

The model has been used to conduct assessments of alternative policy options for banks. These assessments have helped to reform the regulatory framework for the banking industry that is intended to mitigate both the risk and possible effects of future financial crises. 

Publications and outputs

De Lisa, R, Zedda S, Vallascas, F, Campolongo F and Marchesi M. 2011. Modelling Deposit Insurance Scheme Losses in a Basel 2 Framework. Journal of Financial Services Research 40, 123-141.  

Vallascas F and Hagendorff J, 2013. The Risk Sensitivity of Capital Requirements: Evidence from an International Sample of Large Banks, Review of Finance 17, 1947-1988. 

Vallascas F and Keasey K, 2012. Bank resilience to systemic shocks and the stability of banking systems: Small is beautiful. Journal of International Money and Finance. 31(6), pp. 1745-1776. 

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