Financial risk management | EPFL Graph Search

Financial risk management is the practice of protecting economic value in a firm by managing exposure to financial risk - principally operational risk, credit risk and market risk, with more specific variants as listed aside. As for risk management more generally, financial risk management requires identifying the sources of risk, measuring these, and crafting plans to address them. See for an overview. Financial risk management as a "science" can be said to have been born with modern portfolio theory, particularly as initiated by Professor Harry Markowitz in 1952 with his article, "Portfolio Selection"; see . The discipline can be qualitative and quantitative; as a specialization of risk management, however, financial risk management focuses more on when and how to hedge, often using financial instruments to manage costly exposures to risk. *In the banking sector worldwide, the Basel Accords are generally adopted by internationally active banks for tracki

Mise en oeuvre d’une gestion du risque en entreprise 2.0

Cosette Schuler

The Management is a key element in organizations and is a major component in their success. The aim of this thesis is to study the implementation of an enterprise management by putting forward the human factor. The ISO31000 ”Risk Management” standard and the COSO II ”Enterprise Risk Management Framework” were analyzed and mapped. It was found that their structure is similar and the majority of aspects are included in both frameworks. Ten semi-structured interviews were conducted with people working in the field of risk management. The interviews focused on the human factor in the risk management standards in order to identify potential gaps in the frameworks. The interviews were synthesized, analyzed and three hypotheses were put forward. With the ISO31000 and COSO mappings as well as the analysis of the interviews, it was highlighted that the definition of the human factor was not included and the notions of team management were not developed. These elements are aspects that influence risk management. Based on the hypotheses and findings of the analysis of the ISO31000 and COSO standards, a management recommendation was developed. This management recommendation defines the human factor, gives tools for an e↵ective team management and also puts forward the method of Control Self-Assessment (CSA), a method involving the employees in the evaluation of the process of risk management and control.

2022

Credit Supply and the Macroeconomy

Abhik Mukherjee

The policy response to the recent financial crisis has broadly focused on two themes: 1) Increasing the banking sectorsâ resilience to future financial shocks: 2) Improving credit availability to households and firms via lowering both short and long-term interest rates and thereby affecting short-term output and inflation. This dissertation studies how banks and firms have responded to these policy measures. The dissertation comprises of three chapters. The first two analyze the impact of capital regulation on bank lending for two different jurisdictions - United States and Switzerland. The third evaluates the response of U.S. non-financial firms to lower interest rates. The first chapter is joint work with Luisa Lambertini. We estimate the impact of bank capital regulation on lending spreads. We use U.S. firm-level data on syndicated loans matched with Bank Holding Company (BHC) data for the lending banks in our panel regressions. We find that higher bank capital leads to an increase in the loan pricing. Further, we investigate if stress test failure under the Supervisory Capital Assessment Program and Comprehensive Capital Analysis and Review leads to higher loan spreads, since financial institutions that failed were required to raise capital in the short run. Using a difference-in-difference framework, we find: 1) BHCs that failed the stress tests increased their loan pricing; 2) Loan pricing is higher for all banks after the commencement of the stress tests. These findings suggest that greater regulatory oversight and higher capital requirements have made syndicated loans more costly for firms. The second chapter is joint work with Luisa Lambertini, Dan Wunderli and Robert Bichsel. We use confidential loan-by-loan data of Swiss banks to study the impact of higher capital requirements on lending. Our data allows us to trace the link between bank capital and new credit granted at the bank level. Additionally bank-specific variation of capital targets allows us to analyze how deviation from the regulatory capital target impacts loan pricing and volume. We find that tighter capital regulation has small but statistically significant short-term effects on loan pricing and growth. We do not find a permanent effect of higher capital ratios on loan growth. In the third chapter, I study the behavior of U.S. non-financial corporates after the recent financial crisis. I document an increase in the real debt holdings and correspondingly the book leverage for these firms. Controlling for firm and time fixed-effects, I find a higher long-term debt to asset ratio to be associated with lower capital expenditures and growth in fixed capital post-crisis. This is also true for financially unconstrained firms, as determined by the Whited-Wu index, vis-a-vis pre-crisis. Moreover, firms with a higher share of long-term debt after the crisis appear to have a greater likelihood of repurchasing shares and larger dollar payouts to equity holders. The evidence points to the fact that any increase in long-term debt has had an impact on firms' capital structure but no positive effect on real investment.

EPFL2016

Are insurance balance sheets carbon-neutral? Harnessing asset pricing for climate change policy(dagger)

Jiahua Xu

Due to its enormous size and capital base, the insurance industry has the potential to play a key role in countering climate change. To this end, the major capital flows associated with its investment and underwriting businesses would need to be redirected towards carbon-neutral activities. Since insurance companies can be viewed as large portfolios consisting of financial risks (asset side) and underwriting risks (liability side), we suggest an asset pricing approach to detect carbon-intensive positions on their balance sheets. The framework should be accompanied by two simple policy changes to reinforce its effectiveness.

PALGRAVE MACMILLAN LTD2019

Credit Supply and the Macroeconomy

Abhik Mukherjee

EPFL2016