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Referee’s Report on Dissertation Thesis
Faculty of Finance and Accounting University of Economics in Prague
Author: Oleg Kravtsov, MBA
Advisor: prof. Ing. Karel Janda M.A., Dr., Ph.D., VŠE Referee: prof. PhDr. Petr Teplý, Ph.D., VŠE
Title of the Thesis: Essays on Banking and Financial Regulations Type of Defense: FINAL DEFENSE
Date of Defense: 30th September 2020
Address the following questions in your report, please:
a) Can you briefly describe the content of the thesis?
b) Can you recognize an original contribution of the author?
c) Is the thesis based on relevant references?
d) Do the results of the thesis allow their publication in a respected economic journal?
e) Are there any additional major comments on what should be improved and discuss during the defense?
f) What is your overall assessment of the thesis? (a) I recommend the thesis for defense, (b) not-defendable in the form.
A. Content of the thesis
The 2007-2009 global crisis (GFC) has highlighted several weaknesses of the global bank regulatory system known as the “Basel II” framework, which was set up by the Basel Committee on Banking Supervision (BCBS). Until then, commercial bankers had been allowed by Basel II to use internal models, which often underestimated risks and overestimated capital buffers. As the time elapsed, this framework needed revision.
Oleg chose very important topics, because his all three essays deal with issues relevant in the light of the GFC and its consequences on the bank regulatory framework and risk management in the European banking industry.
The thesis is a collection of three papers (chapters 2-4). The first chapter – Introduction– highlights the importance of the investigated topic in the context of the GFC. The second chapter called Regulatory stress tests and bank responses:
heterogeneous treatment effect in dynamic settings deal with an effect of the regulatory stress test framework in the European Union on banks’ investment decisions and portfolio choices. The causal inference and event study methodology are used as main methodological approach, what is standard in the field. Standard robustness checks and additional analyses are also performed. Based on the dataset of the banks subject to EBA stress testing exercises in 2011, 2014 and 2016, Oleg finds evidence of the significant and lasting impact of regulatory stress tests on the portfolio choices and investment strategies. He also documents a decline in the riskiness of portfolios mostly attributable to the decline in risk-weighted assets, what indicates a decrease in overall risk. However, no negative effect on the lending activities linked to the enhanced regulatory was detected. The author´s estimates of the impact of regulatory scrutiny
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from stress tests indicate strong heterogeneity of the effect due to the size of financial institution. This paper was presented at the 21st Annual Conference of Finance and Accounting in 2019 and later submitted the International Journal of Central Banking.
In the second essay Financial Regulations, Supervision Structure and Performance of the Banks in the Central, Eastern and Southern Eastern Europe Oleg estimates the impact of the supervision on the risk-adjusted performance of the banking institutions in Central Eastern Southern Eastern Europe (CESEE). When analyzing a dataset of the 450 banks from 20 economies of the CESEE region, he exploits a cross-country heterogeneity in the supervision activities, stringency in capital rules measured by relevant indexes. Oleg finds, among others, that the supervision structure matters mostly for the larger banks with a status “too-big-to-fail” on the national economy level.
Moreover, his results suggest that the supervision structure (either national or supranational of the SSM) matters mostly for the larger TBTF banks in the analyzed region. He also concludes that the supervision scrutiny does not affect their performance, while it is associated with lower riskiness. This paper has delivered at the 22nd Annual Conference of Finance and Accounting in 2020.
Finally, the third essay Basel III Leverage and Capital Ratio over the Economic Cycle focuses on the implications and effectiveness of a leverage ratio introduced by Basel III as a complementary measure to existing requirements on bank capital ratios. Using a data sample of 320 major banks from seven CEE countries in 2007-2016, an empirical study is conducted. It examines the correlation patterns between the leverage and capital ratio and de-trended components of ratios in relation to the changes in the business cycles. Oleg´s results show suggests that the total assets in contrast to the Tier 1 capital is the main contributor to the cyclical movements. The author also concludes that the active balance sheet management in response to the cyclical changes and therefore advocate in favor of constraining regulations on the leverage. This paper has presented at the 17th Annual Conference of Finance and Accounting in 2016 and at the XXI. Theoretical and Practical Aspects of Public Finance Conference also in 2016. Later on, it was published in the European Financial and Accounting Journal.
B. An original contribution of the author
The subject of the presented thesis is highly topical. Each of the three submitted essays represents an original empirical contribution to the literature as supported by evidence of their publications. One of them has been already published in the in the European Financial and Accounting Journal, one was resubmitted to the International Journal of Central Banking and two have been circulated as ACFA conference papers.
Author´s results contribute to the empirical literature especially in the three areas: the impact of regulatory stress tests on EU banks, the supervision of TBTF banks in the CESEE region and procyclicality of bank balance sheets in the CEE. Oleg´s findings survive a battery of robustness checks and provide some solid support for regulators and supervisors when proposing new bank regulations and rules.
C. Relevant references
The submitted thesis is based on many relevant references (>150 in total) that proves Oleg´s ability to work with scientific literature. All key and classical sources in the field are listed (for bank performance: Demirgüç-Kunt et al. (2008), Berger and Bouwman (2012); for bank stress tests: Acharya et al (2014, 2015, 2018); for bank regulation and
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supervision; Dewatripont and Tirole (1994), Beck et al. (2012); for procyclicality:
Hodrick and Prescott (1981, 1997), Brei and Gambacorta (2016) etc.).
D. Publication in a respected economic journal
As already highlighted, the second paper was resubmitted to the International Journal of Central Banking, a prestige journal in the field. I believe that it will be published there.
E. Major comments and questions to the defense
Despite the stated remarks, I don´t have any major comments to the presented thesis.
I would appreciate if Oleg can during the defense: i) link conclusions of all papers together, ii) highlight own contribution in each paper and compare his findings with other researchers; iii) he should also discuss key policy recommendations from his research.
F. Overall assessment of the thesis
All in all, the thesis by Oleg Kravtsov shows that he has developed a solid academic approach, namely to identify and investigate hypotheses, and to draw relevant conclusions from that. The chosen topic of bank regulation and risk management is a attractive subject, what makes his contribution valuable, in particular to academics, regulators, supervisors and practitioners. I consider the thesis as a very good work and I recommend the thesis for defense in front of the examination committee (“Práci doporučuji k obhajobě před příslušnou zkušební komisí pro obhajobu disertačních prací).
Date: 11th September 2020
Referee’s Signature:
