Cass academics launch online risk assessment tool to monitor bank business models

Cass academics have devised the Banking Business Models 2019 Europe - a tool for assessing the performance of different banking structures.

Researchers in the Centre for Banking Research at Cass Business School have collaborated with academic experts from the Euro-Mediterranean Economists Association (EMEA) and the Centre for European Policy Studies (CEPS) to launch the Banking Business Models (BBM) Monitor 2019 Europe.

The BBM Monitor is the latest iteration of a tool which identifies the business models of more than 3,000 banks to compare and analyse their behaviour.

It assesses the banking sector structure in light of the changing economic, legislative and supervisory environment, and monitors the impact of different types of corporate structures, interaction with ownership structures, size, internationalisation, financial performance and operational efficiency.

BBM analysis was originally developed to assess the contribution of risk of each model to the financial system and economy as a whole. The 2019 monitor updates previous datasets in terms of coverage and years, using data from between 2005 to 2017 in banks across the continent.

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Honorary Visiting Professor in the Centre for Banking Research, Professor Rym Ayadi and Director of the Centre, Professor Barbara Casu Lukac undertook the research, and collated data on different banking structures in collaboration with academics from other institutions

Professor Ayadi attended the launch of the monitor at a special breakfast meeting in Brussels, and explained the significance of the latest edition:

“The Banking Business Model Monitor 2019 Europe allows us to make comparisons of banking performance across a number of different business models.

The tool not only groups each of the 3,287 banks included in the data into five categories of business model, but allows users to gain a snapshot of their profitability, cost efficiency, risk, response to regulation and contribution to the economy – and to make comparisons.

The five categories identified by the model are:

  • Retail diversified type 1 – banks that are diversified on the asset side with high reliance on retail deposits
  • Retail diversified type 2 – banks that are diversified on the asset side with high reliance on wholesale funding
  • Focused retail – banks that are retail focused on the asset and liability sides
  • Investment – banks that are predominately investment on the asset side and display diversified funding
  • Wholesale – banks that are predominately wholesale on the asset and liability sides

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The BBM Monitor is geared towards bank practitioners, policy makers, regulators and academics who are interested in independent research and analysis in the European banking sector. Subject to data availability, results will be updated annually and potentially extended.

Speaking about the main challenges of putting together such a comprehensive data pool, Professor Ayadi continued:

“This has been a really long-term endeavour but we are delighted to bring the BBM open access knowledge platform to life. There were some tremendous challenges to overcome in collecting the data and defining each business model, such as how we defined indicators, how we treated mergers and acquisitions, changes in accounting standards and of course, transparency of banks in their disclosure of information.

“We plan to continue developing the BBM analysis to increase regional and international coverage, and as we continue to expand the data set into Asia, Middle East and North Africa (MENA) and Africa we would of course expect further challenges but hopefully a lot of insightful data as well.”

For more research about banking business models visit the BBM Research website. Business model identification results of the BBM Monitor 2019 for Europe are available for all the bank-year observations upon request from the website.

Find more about the Centre for Banking Research at Cass.

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