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Empirical Methods in Banking and Policy Evaluation

The methodologies applied by various international and national regulatory institutions for evaluating changes in financial regulation have been at the center of a recent executive training course organised at the Florence School of Banking and Finance, on 15-17 May 2019.

The course, entitled ‘Empirical Methods in Banking and Policy Evaluation’, was led by Steven Ongena, Professor in banking at the University of Zurich and the Swiss Finance Institute in Switzerland, who is also a research fellow of CEPR and a research professor at KU Leuven.

The objective of this course was to introduce the participants to the scientific literature on the methodological aspects in empirical banking, in particular highlighting some of the empirical methods to evaluate financial regulation. To accomplish this objective, the instructor introduced participants to the relevant research methodologies used in empirical banking, with a special emphasis on inter-temporal (e.g., duration analysis and event study) and cross-sectional methods (e.g., matching).

In particular, the lectures focused on the methodologies of duration analysis, applied to models of survival and duration of bank-firm connections; event studies, with applications to bank activities (loans, bank distress, mergers) and regulatory announcements; matching, applied in practice on the case of loan terms when firms switch banks, difference-in-differences, presented through impacts of changes in collateral regulation and applications to dynamic provisioning, the EBA capital exercise, and challenges in leverage taxation.

The lectures were complemented by two hands-on sessions led by teaching associate¬†Matteo Gatti, PhD Researcher at the Department of Economics of the European University Institute. Through specific exercises in STATA, participants were introduced to panel estimations, applied to banks’ credit lines.