Banking Research Agenda 2010

Topics for Research Students

ACFS has enlisted the support of a number of practitioners and regulators with the aim of identifying potential research topics suitable as topics for a minor (or larger) thesis which would be of interest to industry and regulators. ACFS is happy to assist students considering topics in the banking area in terms of formulating a precise topic, identifying sources of data, and facilitating contact with industry for advice. Students wishing to pursue industry-relevant research topics in banking are invited to contact: Professor Kevin Davis, Research Director, Australian Centre for Financial Studies, kevin.davis@australiancentre.com.au . The table below provides a listing of subject headings for banking research drawing on a number of sources as a prompt for thinking about research topics. It commences at the macro level, and proceeds to more micro topics. Some topics identified by the ACFS Banking Research Reference Group and others arising out of ACFS activities are shown listed against those areas. A useful source of information on what topics are currently being researched internationally is the FEN Banking & Financial Institutions Accepted Paper and Working Paper series e-newsletters. (Melbourne and Monash have site licenses for SSRN which cover these). 1. Banking and the Economy 1.1. Theory of Banking 1.2. Evolution and Structure of the Financial System 1.3. Monetary Policy and Liquidity Management 1.4. Financial Crises 1.5. Operations of Financial Markets 1.6. Finance and Economic Growth Potential Topics Australian bank offshore funding: causes and consequences Macroeconomics: Offshore funds; superannuation investments: implications for current account deficit What is the appropriate nature and form of tradeoff between Central Bank provision of system/individual bank liquidity support and individual bank responsibility for liquidity risk management? Analysis of housing debt levels and retail customer risk Tax policy and patterns in household savings in Western economies - how has tax policy influenced the pattern of savings in Western economies? Examine savings via the banking system vs wealth management vs investing in housing stock (non-owner occupied). What can be done to encourage savings in Australia what may be the cost of implementing these policy change? How is the cost of bank funding (and loan interest rates) related to the RBA cash rate? Conduct of Open Market Operations in and after the GFC Exploring non-risk-weighted bank leverage ratios: is there evidence that they are important predictors of distress of banks in jurisdictions where they have been used? Macro-prudential regulation The operation of countercyclical bank capital buffers: size, triggers, etc Analysis of the Australian mortgage experience to challenge current international perceptions about mortgage lending; and produce Australia-specific reports Bank credit rating through the cycle and implications for interbank competition, bank executive remuneration and other factors. The role, relevance, design of hybrid capital Loans determinants of asset risk weightings What are the best financial reporting methods /tools? What is the relative value of particular types of disclosures Costs and benefits of govt bank debt guarantees The international usage, role and implications of Depositor Preference legislation Is the Non-Operating Holding Company structure a desirable form of organisational structure for banking?

2. Banking Regulation 2.1. Capital Requirements 2.1.1. Basel 2 2.2. Deposit Insurance 2.3. Bank Accounting and Disclosure 2.4. Prudential Regulation and Supervision 2.4.1. Financing prudential regulation 2.5. Macro-prudential regulation 2.6. Consumer Protection 2.6.1. Licensing, Credit Regulation,

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3. Banking Institutions 3.1. Investment Banks 3.2. Mutuals 3.3. Bank Ownership 3.4. Multinational/Cross-Border Banking 3.5. Islamic Banking 3.6. Bank Activities and Structure 3.6.1. Universal/Commercial Banking 3.6.2. BankAssurance, Funds management 3.7. Microfinance

What determines cross section differences in credit union capital ratios. What are the determinants of such differences? What are their consequences? What is the optimal form of external capital for mutual ADIs such as credit unions, and what forms have been used? How does credit union board and CEO remuneration vary across credit unions and is there any link to performance? What impact did the Government Deposit Guarantee have on flows of funds into credit unions? What has been the post-merger performance of merging credit unions? What factors are relevant to determining that performance? Does an expanded, or removal of, common bond and/or increased size improve the ability of a credit union to manage its liquidity? How do liquidity management practices differ with credit union size? What factors explain differences in credit union profitability over time and cross-sectionally? What cost of equity should credit unions use in pricing and investment decisions, given that equity is communally owned, historically generated, non-traded, and given the complications arising from inability to distribute franking credits? Cross country analysis of housing market lending arrangements and practices and bank/system risk. Future prospects for the Australian Securitization Market

4. Banking Markets and Products 4.1. Bank Mergers and Competition 4.2. Country Studies 4.3. Securitization 4.4. Retail Banking 4.5. Payments Systems 4.6. Loan Markets 4.7. FX Markets 5. Banking Practice 5.1. Bank Management 5.2. Bank Governance and Remuneration 5.3. Risk Management 5.3.1. OpRisk, Credit Risk Models, ALM, Liquidity, VAR 5.4. Lending 5.4.1. Credit scoring, credit rationing, workouts, monitoring 5.4.2. Credit reference bureaus 5.4.3. Margin lending 5.5. Product pricing 6. Bank Performance 6.1. Bank Efficiency 6.1.1. Economies of scale and scope, DEA (X-efficiency) 6.1.2. Operating costs and margins 6.2. Bank Technology 6.3. Innovation 6.3.1. New financial products 6.4. Alternatives to Banks 6.4.1. Securities markets, Consumer payments networks, mortgage originators 6.5. Bank Strategies 6.6. Bank Stock Performance 6.6.1. Cost of bank capital, bank risk, returns

Retail credit risk modeling: Automation in banking and predictive (v customer ranking) ability of statistical loan evaluation models: implications for risks and responsible lending: increased efficiency v increased systematic risk. Explaining differences in how Australian banks fund themselves Executive pay. Do banks with larger executive payments outperform? Do banks will higher executive remuneration take more risk or tend to be more accident prone? How do banks allocate increasingly complex operating costs in the pricing of their financial products, and ensure ability to justify fees and charges as required in some circumstances (and countries) under consumer protection legislation? Analysis of proposed changes to the Basel II framework: implications for relative international image of Australian banks (given nature of their on and off-balance sheet structures) Using the customer funding index (loans/deposits): does it provide information on bank risk and potential financial distress? The importance of retail investors upon the ratings and share price performance of banks (Have Australian banks historically captured a strong PE or price to book vs global peers because they have a high proportion of retail investors who are attracted to the tax advantaged dividend yield) Does this hold globally? Is a dividend imputation system required to drive this rating? Do banks with less volatile earnings performance outperform in a share market context? One of the most volatile source of earnings is bad debts. Do banks with dynamic provisioning outperform? Could look at retail/commercial banks vs investment banks vs trust banks. Determinants of the cost of bank equity What effects have the RBA enforced changes to payments system arrangements (credit/debit cards, interchange fees, ATM direct charging etc) had on bank competition and consumers?

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7. Bank Customers 7.1. Retail Customer decision making 7.1.1. Product choice, switching behaviour, 7.1.2. Default and bankruptcy 7.1.3. Saving and borrowing behaviour 7.1.4. Financial Literacy 7.2. Business Customer decision making 7.2.1. Capital Structure 7.2.2. Working Capital Management 7.2.3. SME Finance

Analyse the likely effects of the introduction of the National Consumer Code (including requirement for "cash-flow based lending" on loan structures and references to interest for Islamic Finance based products).

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