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Macroprudential policy and sustainable finance amongst the topics of high-level discussion at the Fourth Brunel Banking Conference

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On 24th June 2022, the Department of Economics and Finance held the Fourth Brunel Banking Conference (online), this year entitled "Bank performance, macroprudential policy and sustainable finance". The conference was organised by Professor E Philip Davis, Dr Dilly Karim and Dr Ka Kei Chan. With contributions from some of the world’s leading authorities on bank behaviour and regulatory policy, this conference provided a critical overview of the evolution and impact of macroprudential policy, incorporation of sustainability considerations in ratings and regulation, the evolution of central banking and the performance of banks in times of crisis and during financial development.

This high-level conference (along with its predecessors in 2018, 2019 and 2021) underlined the development of Brunel as a centre of research and teaching in banking economics, the latter being reflected in the introduction of the BSc in Banking and Finance to complement the long standing Banking and Finance MSc, both of which are proving highly popular with students. We also have instituted a Brunel Banking Research Group comprised of the organisers, Dr Oleg Badunenko, Dr Apostolos Fasianos, Dr Woo-Young Kang and Dr Tomoe Moore, which builds from our research and policy work in fields such as macroprudential policy, bank competition and risk, and pension fund regulation.

The conference speakers included senior officials from the major international financial organisations, Erlend Nier of the International Monetary Fund and Alvaro Pedraza from the World Bank; and from key central banks, namely John Fell from the European Central Bank and Fergal McCann from the Central Bank of Ireland. The presenters also included an expert from the financial services industry, Janine Dow of Fitch Ratings; world-leading academics, that is Professor David Aikman of King’s College, London, Professor Rosa Lastra of Queen Mary College, London and Professor Giovanni Ferri of LUMSA University of Rome; besides Brunel Professor of Banking and Finance E Philip Davis. Sessions were chaired by Davis, Karim, Chan and Fasianos. The conference was introduced by Brunel’s Vice Provost – Research, Professor Geoff Rodgers.

The conference was organised under four headings; Macroprudential Policy (Aikman, Fell and McCann), Sustainable finance and ESG (Dow and Ferri), Central Bank Policy (Lastra and Nier) and Bank Performance (Davis and Pedraza). The conference presentations raised a rich range of challenges and questions for future research and policy consideration, including the following:

  • Overcoming the lack of clarity and transparency in the framework for macroprudential policy, including issues for objectives, risk assessment, use and impact (Aikman)
  • Whether macroprudential tools can usefully be divided into those directed at resilience versus cyclical smoothing, using a meta-regression approach (Fell)
  • Further investigating asymmetries between the tightening and loosening of macroprudential policy, where the latter is rarely investigated (McCann)
  • The relative roles of environmental, social and governance factors in default risk for banks (Dow) and for equity volatility and overall ESG scores for a wider sample of companies (Ferri)
  • Effects on central-bank credibility and autonomy of the ongoing widening of mandates, especially including sustainable finance (Lastra)
  • Relative effects of macroprudential and monetary policies in easing or aggravating not only “tail risks” to GDP growth but also net losses across the whole distribution (Nier)
  • Distinctions in the determination of profitability of banks in Africa from the rest of the world and its implications for regulators (Davis)
  • The impact of the pandemic and of related regulatory-policy announcements on equity returns for different types of banks (Pedraza)

A number of the above posed policy questions for bank regulators and central banks such as

  • How should the countercyclical capital buffer be used – has discretion failed to provide useful outcomes (e.g. insufficient use for cyclical smoothing) and should there be rules?
  • Was the regulatory easing in the pandemic effective or was its effect trivial compared to fiscal and monetary easing?
  • How should central bank mandates be adjusted to ensure credibility and accountability despite widening responsibilities? If there is a multiple mandate, how is an appropriate balance between the objectives to be ensured?
  • What central-bank policy is best assigned to deal with climate change – or is the responsibility best allocated elsewhere?
  • What challenge to financial stability will be posed by the upcoming tightening of monetary policy (and renormalisation of fiscal policy) in the context of high and rising inflation?
  • Could the bank-sovereign link become deadly again – including in developing countries with high bank holdings of government debt?
  • Should macroprudential policy be devoted to financial-sector resilience or can it also cater for moderation of the cycle? Which policies have a comparative advantage – does it vary between high and low credit economies? How should resilience be measured?
  • Does regulation take sufficient account of the apparent dominance of governance factors in the context of the new focus on ESG?
  • Can progress be made on macroprudential policies for nonbanks?
  • Are stress tests and bans on share buybacks given sufficient prominence in the macroprudential toolkit?
  • How vulnerable are banks to climate change – are they sufficiently diversified to cover related risks?
  • Is there an appropriate interaction of prudential regulation, ESG and financial inclusion?

We note finally that hosting the conference on Zoom was valuable in a number of ways, not least the scope for interaction and also for presentations from long distance (with two presenters being in Washington). On the other hand, attendance was perhaps more variable than would be the case for a conventional conference, and of course informal interaction over lunch and coffee breaks was lacking. These considerations prompt us to aim for a hybrid approach next year.

Links to the conference presentations are provided below – the reader is warmly encouraged to read them attentively!

Session 1: Macroprudential Policy

David Aikman (Professor of Finance, King’s College London) “A stocktake of progress in developing the macroprudential policy framework

John Fell (Deputy Director General, Macroprudential Policy, European Central Bank) “Macroprudential policy instruments in search of objectives: a meta regression analysis

Fergal McCann (Head of Function, Stress Testing, Analytics and Resilience, Central Bank of Ireland) “The effects of a macroprudential loosening: the importance of borrowers' choices

Session 2: Sustainable Finance and ESG

Janine Dow (Senior Director, Sustainable Finance, Fitch Ratings) “Where ESG matters in credit for global financial institutions"

Giovanni Ferri (Professor of Economics, LUMSA University of Rome) "All you need is G(overnance): Sustainable Finance Following Ambrogio Lorenzetti’s Frescoes"

Session 3: Central Bank Policy

Rosa Lastra (Sir John Lubbock Chair in Banking Law, Queen Mary College) “Greening central banking

Erlend Nier (Deputy Division Chief, Monetary and Capital Markets, IMF) “Assessing the net benefits of macroprudential policy: a growth-at-risk approach

Session 4: Bank Performance

E Philip Davis (Professor of Banking and Finance, Brunel University) “Determinants of bank profitability in Sub Saharan Africa

Alvaro Pedraza (Economist, Finance and Private Sector Development, World Bank) “Bank performance during COVID

 

Previous Brunel Banking Conference Reports

Link for report on the Third Brunel Banking Conference

Link for report on the Second Brunel Banking Conference

Link for report on the First Brunel Banking Conference