FBF RESEARCH CHAIR
Presentation of the Partner
About the Fédération Bancaire Française (FBF)
The French Banking Federation (FBF) is an association which represents all French banks and foreign banks with operations in France in the form of subsidiaries or branch offices, whether they are European or from the rest of the world. It was formed in 2000 from the desire to bring together all companies in the banking sector – commercial banks already enjoying membership of the French Bankers Association (AFB) and cooperative and mutualist banks – in order to promote, with a single voice, the activity of the profession in France, Europe and internationally. Located in Paris, the FBF is also present throughout France via a network of 105 regional and departmental committees. It also maintains offices in Brussels, and a representative office in Frankfurt since November 2014.
• 120 permanent staff work at the FBF and the AFB in conjunction with more than 350 bankers that come together in the FBF’s commissions and committees. On the ground, 105 regional and departmental committees call upon the services of more than 2,500 bankers.
• 378 banks are members of the FBF: universal banks, online banks, merchant banks, private banks, local banks, etc. Credit institutions licensed as banks and the branch offices of credit institutions in the European Economic Area can, it they wish become fully-fledged members of the FBF, which would then represent their professional institution. The central bodies of cooperative or mutualist banking groups and the AFB are also fully fledged members.
Since 2008, the French Banking Federation (FBF) has been supporting the academic researches dedicated to investment banking. In 2013 and for a period covering 2013-2017, FBF renewed its engagement and allocated substantial supports to three Chairs namely “IDEI Toulouse” dedicated to investment banking and markets, “EDHEC-Risk Institute” dedicated to derivatives and structured products and “Polytechnique / Evry” dedicated to market transition.
Presentation of the Partnership
Objectives
The aim of the Fédération Bancaire Française (FBF) “Innovations and Regulations in Investment Banking” Research Chair is to provide advanced research in four areas: skewness as an asset class; corporate and sovereign credit default swap (CDS) markets; the evaluation of policies to regulate financial markets; and options on liquidity.
The chair is under the scientific responsibility of Lionel Martellini, Director of EDHEC-Risk Institute.
The research will begin by analysing the question of skewness as an asset class. This major innovation could usefully complete the asset mix available to long-term investors, with strong expected benefits in terms of downside risk protection, a source of increasing concern for investors and regulators alike.
It also aims to provide an in-depth analysis of corporate and sovereign CDS markets and their economic usefulness. The research will evaluate a variety of regulatory measures and their impact on markets and on the real economy. Finally, the chair will look at options on liquidity in a general equilibrium model with market frictions.
Details of the previous FBF research chair on “Structured Products and Derivatives” may be found here.
Research Outputs:
Initial Margin for Non-Centrally Cleared OTC Derivatives: Overview, Modelling and Calibration
June 2016
Dominic O’Kane
This paper provides a detailed overview and analysis of the forthcoming new framework to be used by large financial institutions to determine initial margin (IM) and variation margin (VM) payments when trading non-cleared over-the-counter (OTC) derivatives. The paper provides an overview of the new initial margin (IM) regulations that will come into effect in September 2016. Of the two proposed approaches, it explains why the model-based approach is the only framework that correctly captures the counterparty risk presented by non-centrally cleared OTC derivatives. It also sets out the modelling requirements specified by the WGMR, and discusses modelling implementation issues. In particular, the fact that the framework prevents the risk of assets with multiple market factors from being netted fully is discussed. Additionally, it describes the current IM model being developed by the International Swaps and Derivatives Association (ISDA). It then presents some model calibrations across a range of asset classes, performed in a manner that conforms to the WGMR requirements.
The Intended and Unintended Consequences of Financial-Market Regulations: A General Equilibrium Analysis
January 2016
Adrian Buss, Bernard Dumas, Raman Uppal, Grigory Vilkov
In a production economy with trade in financial markets motivated by the desire to share labor-income risk and to speculate, this paper shows that speculation increases volatility of asset returns and investment growth, increases the equity risk premium, and reduces welfare. Regulatory measures, such as constraints on stock positions, borrowing constraints, and the Tobin tax have similar effects on financial and macroeconomic variables. Borrowing limits and a financial transaction tax improve welfare because they substantially reduce speculative trading without impairing excessively risk-sharing trades.
Optimising the Compression Cycle: Algorithms for Multilateral Netting in OTC Derivatives Markets
March 2014
Dominic O’Kane
Concerns about systemic credit risk in the financial system due to the OTC derivatives market has encouraged the use of counterparty credit risk mitigation techniques, including the use of compression. In compression, market participants share position information via a third party company, TriOptima, which then proposes a set of trades which will “compress” their multilateral exposures. In this paper we propose and analyse a set of optimal compression algorithms for fungible derivatives. We find that they all perform extremely well across a range of criteria and we discuss their relative attributes. Our focus is on the CDS market, although the methods analysed here can be applied to other OTC derivative markets. We argue that, if done optimally, compression is an effective counterparty risk mitigation technique that should be encouraged by regulators, especially as we show that the benefits increase dramatically with the number of participants.
Related events:
Events in French
Séminaire : Trading et investissement dans les marchés opaques
22 septembre 2016 – Paris
La Fédération Bancaire Française organise dans ses locaux à Paris, le 22 septembre 2016, un séminaire sur les stratégies de transaction et d’investissement dans des marchés et actifs opaques ou illiquides, qui réunira les représentants des deux chaires qu’elle finance : EDHEC-Risk Institute et Toulouse, School of Economics.
Lors de ce séminaire d’une demi-journée, Raman Uppal, Professeur de Finance de l’EDHEC Business School, présentera les résultats de ses derniers travaux sur la gestion et l’évaluation d’actifs opaques et illiquides. Suivra ensuite une présentation du Professeur Sabrina Buti, de l’Université Paris-Dauphine sur les Dark Pools. Enfin, une présentation de Bruno Biais, Directeur de Recherche CNRS, Toulouse School of Economics, analysera la liquidité et l’information sur les marchés des obligations émises par les entreprises.
Ces présentations seront commentées par trois membres des comités scientifiques des chaires: Kheira Benhami (Adjointe au Directeur de la Division Etudes, Stratégie et Risques, Autorité des Marchés Financiers), Michel Crouhy (Responsable Recherche et Développement, Natixis) et Thierry Roncalli (Responsable Recherche et Développement, Lyxor Asset Management).
Atelier : Les innovations et la régulation financière dans la banque d’investissement
20 janvier 2016 – Paris
La chaire de recherche sur les innovations et la régulation dans la banque d’investissement conduite par l’EDHEC-Risk Institute avec le soutien de la Fédération Bancaire Française (FBF) se décline sur quatre thèmes principaux : la skewness en tant que classe d’actifs ; l’analyse du marché des contrats d’échange sur risque de crédit (CDS) souverains et d’entreprise ; l’évaluation des politiques de régulation des marchés financiers ; et les options sur la liquidité.
Lors d’un atelier d’une demi-journée le 20 janvier 2016, dans les locaux de la FBF à Paris, Raman Uppal, Professeur de Finance de l’EDHEC Business School, présentera les résultats de ses derniers travaux sur les conséquences prévues ou imprévues de la régulation des marchés financiers. Suivra ensuite une présentation du Professeur Jean-Christophe Meyfredi, de l’EDHEC Business School, sur l’impact de l’interdiction de l’UE de la vente à découvert sur le marché des CDS souverains. Enfin, une présentation de Dominic O’Kane, Professeur de Finance Affilié à l’EDHEC Business School, analysera de manière approfondie les risques de contrepartie sur les marchés dérivés.
Chaque présentation sera commentée par deux des membres du comité scientifique de la chaire de recherche de l’EDHEC-Risk Institute : Thierry Roncalli, Responsable recherche et développement de Lyxor Asset Management, et Michel Crouhy, Responsable de la recherche et du développement de Natixis.
About EDHEC
Operating from campuses in Lille, Nice, Paris, London and Singapore, EDHEC is one of the world’s top 15 business schools. Fully international and directly connected to the business world, EDHEC commands a strong reputation for research excellence and the ability to train entrepreneurs and managers capable of breaking new ground. EDHEC functions as a genuine laboratory of ideas and produces innovative solutions valued by businesses. The School’s teaching is inspired by its research work and a focus on “learning by doing”, all with the aim of equipping people with the skills to succeed in business.
