Presentation and objectives

The International Research Centre on Cooperative Finance (IRCCF) of HEC Montréal has set up a program of internal seminars to promote scientific advancements, as well as to share knowledge and expertise in the areas of finance, banking, policy and cooperative finance.

Once a month, a professor, a guest researcher or a master/Ph.D. student is invited to present his/her research work. A further objective of these seminars is to cross-fertilize with IRCCF projects.

Who can attend the internal seminars?

The IRCCF internal seminars are primarily open to IRCCF researchers. Students, professors and researchers are also invited to participate.

Selection criteria for presenters

You need to be a professor, researcher, professional or a master or Ph.D. student in finance, economics, management or any other area having links with the banking industry and/or the cooperative finance sector and be willing to share knowledge, experience or research findings.

For more information, please contact institutcoop@hec.ca.

Agenda 2017

Presenter(s): Hong Yu Xiao, Ph.D. student in Applied Economics, Wharton School, University of Pennsylvania (United States)
Subject: Local vs National: Regulatory and Cultural Entry Barriers in the Canadian Retail Banking Industry
Date: Friday, February 03, 2017, 10:00 to 11:30 am

We estimate a perfect information static entry game to study the factors that influence the competitiveness and geographic presence of credit unions and large national banks in a dual banking system context. The Canadian banking industry provides a good setting for analysis because it is highly concentrated and has a relatively stable market structure, potential entrants can be clearly identified, and there are financial institutions regulated at different levels (banks and credit unions). We found that credit unions have significant comparative advantages relative to larger national banks in small and economically less attractive rural markets. Also, cultural entry barriers play an important role in explaining some of these advantages. Several counter-factual experiments show that the effectiveness of certain regulations and market strategies are significantly limited by these cultural barriers that shape the competitive landscape.

 

Agenda 2016

Presenter(s): Andrés Mesa Toro, Faculty of Economics at University of Navarra (Spain)
Subject: Understanding Depositor Discipline in Credit Unions
Date: Tuesday, December 20, 2016, 10:00 to 11:30 am

In this paper, we analyze whether credit unions are subject to market discipline by their (member) depositors and examine the variables which influence the intensity of this disciplining effect. We use the longer time series of US credit union data available and divide our analysis into three parts. First, we provide baseline evidence of depositor discipline in credit unions: shares and deposits of credit union members respond to changes in variables which reflect the credit union’s risk-taking strategies. We show that this disciplining effect is long-lasting and it is affected by the existence of an insurance scheme and the extent of local competition from other credit unions and banks. Second, we use proxies of the capacity of members to access and process credit union information to show that discipline is heavily influenced by asymmetric information considerations. Finally, we take advantage of two regulatory changes which act as natural experiments and show that credit union depositors indeed react negatively to shocks that increase the risk-taking capacity of the credit union. Our results have important policy implications regarding the impact that market discipline may have on financial stability through the disciplining of credit unions.

Presenter(s): Giorgio Caselli, doctoral researcher at Cranfield University (United Kingdom)
Subject: Ownership Diversity and the Risk-Taking Channel of Monetary Transmission: Evidence from Europe
Date: Thursday, November 17, 2016, 10:00 to 11:30 am

The aim of the presentation is to shed new light on the link between diversity in banking and financial system stability. The question we address concerns the extent to which the ownership composition of the banking system moderates monetary policy transmission via the risk-taking channel. We treat ownership types (i.e. commercial, cooperative and savings) as analogous to species in an ecosystem and construct indices of ownership diversity for the loan and deposit markets. Our results, based on a large panel of shareholder and stakeholder banks operating in Western Europe, suggest that ownership diversity buffers the impact of unexpected monetary policy shocks on banks’ probability of default. Evidence is also found for banks located in countries with a greater diversity of ownership structures having on average a lower appetite for risk than their counterparts from less diverse markets. These results hold across several econometric specifications and emphasize the stabilizing role played by ownership diversity in modern financial systems. From a policy perspective, our findings concur with the benefits to be gained from a critical mass of stakeholder banks operating vis-à-vis shareholder banks. It follows that competition between different ‘species’ of banks (rather than between banks of the same type) should be encouraged and that the market shares on the loan and deposit sides of the market should be distributed evenly across ownership forms.

Presenter(s): Ndiouma Ndour, IRCCF Associate Researcher and Assistant Professor at Assane Seck de Ziguinchor University (Senegal)
Subject: Microfinance in the Dynamism of Socially Responsible Investment: Approaches and Measures in Women’s Entrepreneurship
Date: Tuesday, October 18, 2016, 2:00 to 3:30 pm

In Senegal, most microfinance institutions (MFI) are specialized in providing local financial services (microcredit, savings, insurance and transfer) to ensure the economic and social self-promotion of households excluded from the traditional banking system. Starting from responsible finance or financial inclusion of MFIs in women’s entrepreneurship, this results in a sustainable development and a strengthening of sustainability and governance practices in the long-term.
Socially Responsible Investment (SRI) practices have been developed since 2008 with the new regulations in force in the decentralized financial systems (DFS) in the West African Economic and Monetary Union (UEMOA). They aim to reconcile the economic, social and environmental performance which, by influencing the governance and the behavior of the actors, promote a responsible economy. An MFI behaves socially responsible when it seeks to respond to the interests of stakeholders (state, NGO, MFI, SMEs, households, etc.) while seeking to maximize socio-economic and financial indicators. To this end, guarantee funds, grants and savings stocks serve as leverage in the social responsibility of local financing granted to women’s entrepreneurship.
The choice of this study in Senegal, and more particularly on women’s entrepreneurship, is justified by the sustained development of income-generating activities in sectors such as fisheries, agriculture and livestock. These activities are an integral part of programs to combat poverty and improve purchasing power, education and health in the area.

Presenter(s): Giovanni Ferri, Full Professor of Economics, LUMSA University (Italy)
Subject: The Efficiency of Mergers among Cooperative Credit Banks: Evidence from Italy
Date: Friday, October 14, 2016, 12:00 to 1:00 pm

In this paper, we try to assess whether mergers among Italian mutual cooperative banks (Banche di Credito Cooperativo, BCCs) are efficiency-enhancing. For the purpose, we employ a two-step procedure: we first estimate bank-level cost efficiency scores for a large sample of Italian banks in the period 1993-2013 by means of a stochastic frontier approach, then we try to explain the estimated BCCs cost efficiency with a set of merger status dummy variables (never merged, before the first merger, merged once, merged twice, etc.) as well as with a vector of control variables. We find that mergers increase mutual banks’ cost efficiency only after a BCC has merged at least three successive times with other BCCs, hence after reaching a remarkably large size. However, we conjecture that this growth in size could harm especially marginal borrowers (i.e. those who are likely to be served by smaller banks but neglected by bigger ones), with a strong and adverse impact on development and inequality and in contrast with the BCCs’ ethics and mission.

Presenter(s): Willem Pieter De Groen, IRCCF Associate Researcher and Research Fellow at Centre for European Policy Studies (Belgium)
Subject: Collaborative Economy and Labour Market
Date: Monday, July 4, 2016, 1:00 to 3:00 pm

The digitalisation of work is creating new ways of intermediating work, with for example platforms intermediating work between individuals online. These so-called online collaborative platforms have the potential to fundamentally change the labor market, but for the moment they do not seem to have a large impact on the offline/traditional labor market or the create/destroy impetus. The presentation shows the main findings from the two case studies and policy paper on the subject.
The findings, based on a collection of empirical studies, suggest that most workers do not earn their main income through online platforms and they obtain earnings from different types of platforms. Earnings from physical/local services are, in general, substantially higher than virtual services that can potentially be delivered globally. The number of hours worked and employment status, compared to the offline labor market, show large differences across types of workers, platforms, and countries.
The emergence of online collaborative platforms poses some challenges and opportunities for policy-makers. On the one hand, they may be challenged to ensure minimum remuneration, fair evaluation, tax declaration and social protection, and reduction of the administrative burden. On the other hand, the new technologies may provide opportunities to (partially) liberate some professional services, activate specific groups at a distance away from the labor market and create new jobs.

Presenter(s): Hans Groeneveld, Distinguished Professor of Cooperative Financial Services at TIAS business school of the Tilburg University, holder of a Ph.D. in Monetary Economy from the University of Maastricht (Netherlands) and Associate Director Cooperative & Control at Rabobank
Subject: Rabobank and European Co-operative Banks
Date: Thursday, June 21, 2016, 10:00 to 11:30 am

After establishing the first cooperative bank in the Netherlands 120 years ago, Rabobank has taken a historic decision to change its governance structure. From 1 January 2016, all 106 local member banks and the cooperative central institution, Rabobank Nederland, form one cooperative, with one banking license, and one financial statement. After intensive and sometimes emotional discussions, Local Members’ Councils agreed unanimously to all the proposed governance changes. In the past, resulting from developments within society and banking, the bank made frequent adjustments to its governance. However, this landmark decision definitely signals the end of a long chapter in Rabobank’s history. At the same time, it also heralds a new beginning for Rabobank. By taking this step, the bank both preserves, as well as renews, its cooperative roots. In this presentation, Hans Groeneveld puts this historic decision in the context of Rabobank’s governance and organizational evolution. He considers how they evolved, the internal processes, plus the main characteristics of the new governance. The presentation underlines how member influence’ and control will continue to be firmly anchored, both at the local grassroots level and at the group level. The voices of Rabobank members still determine the specific nature of the Rabobank cooperative in Dutch banking and society – now and in the future.

Presenter(s): Thuy Seran, Lecturer at University of Montpellier (France)
Subject: Governance and Management Control Systems in Hybrid meta-organizations – The case of French cooperative banks
Date: Thursday, June 09, 2016, 12 to 1:30 pm

Meta-organizations represent a new type of institutional structure, which is both highly complex and not widely understood by academics and practitioners. Based on the case study of over 79 French regional banks within two hybrid meta-organizations – BPCE and Crédit Agricole – our study adopts an abductive grounded theory approach and focuses on three elements of these two meta-organizations:
Firstly, we investigate the link between the governance structure and the co-existence of different value systems in management control systems, outline the imbalance between informal and formal control and provide a general framework that connects value systems, governance structures and management control levers with a cyclic, dynamic perspective, evolving towards a gradual convergence/homogenization and further hybridization.
Secondly, we develop existing knowledge of coopetition strategy, by providing analysis of the specific managerial methods and the approaches taken to reduce internal tensions within multi-unit and multi-brand areas within these two meta-organizations. Our findings indicate that inter-unit projects balance responsibilities across the firm, while horizontal coordination and social interaction also eliminate blocking and facilitate decision making.
Finally, based on the observations of two mega IS implementation projects (2006-2010 for Caisse d’Epargne and 2010-2013 for Credit Agricole), we outline the emergence of best practices and present the socio-relational challenges of the MOIS implementation process, expressed through the creation of knowledge and the common boundaries between various social worlds, in respect of the boundary-spanning mechanisms applied for their resolution.

Presenter(s): Sandra Challita, Ph.D. student in management science and teaching assistant at University of Montpellier (France)
Subject: Cooperative and Investor Owned Thrifts: A Comparison of Activities, Business Lines, Performances, and Risk
Date: Wednesday May 04, 2016, 12 to 1 pm

Held in a context of post-financial crisis, this research showed the impact of strategies adopted by depository institutions and how the role their ownership structures affected the way they approached customer relationships and, consequently, their financial performance. We focused primarily on the differences between cooperatives and investor-owned thrifts in the United States. We compared the activities and their impact upon financial performance and risk. We examined the relational approach adopted by each type of governance while controlling the institutions’ characteristics. We evaluated the choice of market segments and the relational approach, and then their impact upon performance and stability of returns. Thus, we noticed that cooperatives invested more in relationship lending than investor-owned institutions, even though they relied on both traditional and non-traditional activities, and they invested less in marketing activities. We also discovered that cooperatives financially and socially outperformed investor-owned savings and loan institutions, and that they had a lower risk of default and financial risk. We noted that serving the credit needs of businesses and consumers led to better performance. Moreover, we found that diversifying into traditional and non-traditional activities led to a lower risk of default, without having any significant impact on overall performance. The main contribution of the paper was to add the ownership structure variation to the strategic features and the financial performance.

Presenter(s): Barry Quinn, IRCCF Senior Associate Researcher and Lecturer at Queen’s University Belfast (Ireland)
Subject: Does Basel Compliance matter for Bank Performance?
Date: Wednesday, April 06, 2016, 12 to 1 pm

The global financial crisis underlined the importance of regulation and supervision in a well-functioning banking system that efficiently channels financial resources into investment. In this paper, we contribute to the ongoing policy debate by assessing whether compliance with international regulatory standards and protocols enhances bank operating efficiency. We focus specifically on the adoption of international capital standards and the Basel Core Principles for Effective Bank Supervision (BCP). The relationship between bank efficiency and regulatory compliance is investigated using the Simar and Wilson (2007. J. Econ. 136 (1), 31) double bootstrapping approach on an international sample of publicly listed banks. Our results indicate that overall BCP compliance, or indeed compliance with any of its individual chapters, has no connection with bank efficiency.

Presenter(s): Axel Siliadin, Ph.D. candidate at HEC Montréal (Canada)
Subject: Heterogeneous Rating Categories and the Credit Spread Puzzle
Date: Wednesday January 27, 2016, 2 to 3 pm

This paper sets out to estimate the share of the default spread in the total corporate bond spread. The essay proposes an extension to the standard estimation approach of the Merton model from equity prices, in order to incorporate historical default rates in the estimation, while taking into account the heterogeneity of firms. It is shown that this recommended approach provides a more accurate estimation of the share of the default spread in the total spread compared to the standard approach. The proposed approach is then applied to a sample of nearly three million daily observations of 1,286 North American companies. One of the main results is that the average default spread represents 40% of the total average spread of BBB bonds with a maturity of four years. This share is about two-thirds of the share obtained if historical default rates are not included in the estimation and twice the share obtained if heterogeneity is ignored.

 

Agenda 2015

Presenter(s): Michel Yevenunye Keoula, Professional researcher at the IRCCF (Canada)
Subject: Product Innovation Incentives by an Incumbent Firm: A Dynamic Analysis
Date: Wednesday, December 16, 2015, 2 to 3 pm

We employ a dynamic framework to study how product innovation activities of a firm are influenced by its investments in production capacity of an established product and vice-versa. The firm initially has the capacity to sell an established product. Additionally, it also has the option to undertake an R&D project, which upon completion allows the firm to introduce a new vertically and horizontally differentiated product to the market, thereby extending its current product range. The breakthrough probability of detecting the new product depends on both the value of the firm’s R&D stock and its current R&D investment. It is shown that the initial production capacity for the established product influences the intensity of R&D activities of the firm. In particular, there are certain constellations that for large initial production capacity for the established product the firm never invests in R&D and the new product is never introduced. For small initial capacity, the firm keeps investing in R&D, implying that eventually the new product is always introduced. Finally, for an intermediate range of initial capacity levels, the firm initially invests in product R&D, but then reduces these investments to zero. In this scenario, the new product is introduced with a positive probability which is, however, substantially smaller than 1. From a technical perspective, this analysis provides an example of a new type of Skiba threshold phenomenon in the framework of a multi-mode optimization model.

Presenter(s): Willem Pieter de Groen, IRCCF Associate Researcher and Researcher Fellow at the Centre for European Policy Studies (Belgium)
Subject: Estimating the Bridge Financing Needs of the Single Resolution Fund: How Expensive is it to Resolve a Bank?
Date: Wednesday, November 11, 2015, 2 to 4 pm

The Single Resolution Board (SRB) will from 1 January 2016 be responsible for the resolution of banks in the euro area. However, the resources of the Single Resolution Fund at the disposal of the SRB will only gradually be built up until 2023. This paper provides estimates of the potential financing need for the SRF, based on the euro area bank resolution cases that actually occurred between 2007 and 2014. We find that the SRF would have been asked to put a total amount of about €72 billion into these failing banks, which is more than the target for the SRF (€55 billion) but less than the amount the SRF could draw on, if the ex-post levies are also taken into account. As this sum would have been required over eight years, the broad conclusion is that bridge financing, in addition to the existing alternative funding, would only have been needed in the early years of the transition.

Presenter(s): Barry Quinn, IRCCF Senior Associate Researcher  and Lecturer at Queen’s University Belfast (Ireland)
Subject: A Sustainable Business Model Strategy for Irish Credit Unions: Does One Size Fit All?
Date: Tuesday, November 3, 2015, 2 to 3 pm

This study examines the business model complexity of Irish credit unions using a latent class approach to measure structural performance over the period 2002 to 2013. The latent class approach allows the endogenous identification of a multi-tiered business model based on credit union specific characteristics. The analysis finds a three-tier business model to be compatible with the multi-tier model dependent on three financial viability characteristics. This finding is consistent with the deliberations of the Irish Commission on Credit Unions (2012) which identified complexity and diversity in the business models of Irish credit unions and recommended that such complexity and diversity could not be accommodated within a one size fits all framework. The analysis also highlights that all tiers are subject to decreasing returns to scale at the sample mean. This may suggest that credit unions would benefit from a reduction in scale or perhaps that there is an imbalance in the present change process. Finally, relative performance differences are identified for each tier in terms of technical efficiency. This suggests that there is an opportunity for credit unions to improve their performance by operating within tier best practice or alternatively by switching to another tier.

Presenter(s): Oussama Marzouk, Ph.D. candidate, Department of Decision Sciences at HEC Montréal (Canada)
Subject: A Crash Insight into Counterparty Risk
Date: Friday September 11, 2015, from 9 to 11 am

Counterparty risk is defined as the risk faced by an entity entering an Over-the-counter (OTC) contract with a counterparty having a relevant default probability, so that it might not respect its payment obligations. Since the global financial crisis of 2008, it has been recognized that credit risk should be taken into account when evaluating the value of OTC derivatives. The Credit Value Adjustment (CVA) capital charge required by Basel III incorporates the impact of counterparty risk, as it measures the expected potential loss from counterparty default. Wrong Way Risk (WWR) is the additional risk faced when the underlying asset and the default of the counterparty are correlated.
While the computation of CVA is straightforward for European-style derivatives (Klein 1996, Gregory 2010), it is not the case for derivatives with early exercise opportunity because the CVA is then path dependent (exposure falls to zero after exercise). In that case, the CVA is then evaluated using computationally intensive simulation-based methods.
In this paper, we introduce a new approach to price counterparty risk and compute the CVA for derivatives having early exercise features. This approach is much more efficient than currently available methods, providing an accurate evaluation without the need for costly simulation. Moreover, the algorithm provides more than a point estimate: it yields the value of the vulnerable derivative and the CVA for all possible values of the underlying asset and time to maturity. The CVA pricing model is implemented using an intensity model for counterparty default, which can be calibrated to market data.

Presenter(s): Joëlle Basque, Professional researcher at HEC Montréal, and Ann Langley, Professor at HEC Montréal, Member of IRCCF Scientific Board (Canada)
Subject: Invoking “Alphonse” : the Role of the Founder Figure in Organizational Identity Work
Date: Wednesday June 17, 2015, 12 to 1 pm

Here, we ask how organizational leaders can keep alive the memory of their predecessors. We explain why it is important for leaders to invoke organizational memory in their discourse, especially in activities concerned with performing identity work. We draw on textual data from the employee magazine of Desjardins, a Quebec cooperative financial group, to analyze references to the “founder figure” in articles and other texts written by leaders and members of the cooperative over the last 80 years. We examine, in particular, how the “founder figure” has been used at critical times in this organization’s life to reformulate, maintain, strengthen, or revise organizational identity. Our article contributes to the discussion on the paradox of stability and change in organizational identity as well as to the growing amount of literature dedicated to organizational identity work.