The Regulations and Governance theme contains the largest number of researchers in BBS (20 members), with social science and economic research across a wide spectrum of disciplines including accounting, banking, communications, economics, finance, marketing, politics, public administration, and psychology. The vast majority of the research in this broad area is concerned with the evaluation of regulations or policies that are imposed by regulators or governing bodies and governments (e.g., short-selling, securities laws, credit ratings, price quotation mechanisms, inflation-targeting regimes, and taxation). Researchers in this group are actively working with governments, regulators, policy makers, and watchdogs including the: European Central Bank (Altunbaş, Carbo-Valverde, Reghezza); Bank for International Settlements (Altunbaş); Welsh Revenue Authority (Closs-Davies); Welsh government (R ap Gwilym, Rogers), Competition and Markets Authority (Ashton) and the Financial Conduct Authority (Ashton). Some research also pertains to the formation of regulations such as the potential introduction of health warning labels on alcohol products and is feeding into policy documents by bodies such as the World Health Organisation (Hassan, Shiu).
Within this theme, a series of interdisciplinary research work examines political and social issues that link to regulations and governance, such as political patronage and linkage to firm structure (J Williams); how innovation policies provoke social change (Vasilakis); birthplace diversity affects and economic growth (Vasilakis); linkage between public funding for mental health support and personal income (Mantovan). This theme comprises two vibrant research clusters.
Research Theme staff: Prof Yener Altunbaş, Dr Rasha Alsakka, Prof John Ashton, Prof Santiago Carbo-Valverde, Dr Sara Closs-Davies, Prof Owain ap Gwilym, Dr Rhys ap Gwilym, Prof Louise Hassan, Dr Danial Hemmings, Prof Lynn Hodgkinson, Prof Aziz Jaafar, Dr Noemi Mantovan, Prof Kostas Nikolopoulos, Dr Ayan Orujov, Alessio Reghezza, Dr Helen Rogers, Prof Edward Shiu, Prof Jonathan Williams, Dr Gwion Williams, Dr Chrysovalantis Vasilakis
Specialist Research Clusters
- Credit and Uncertainty
- Financial Services: Competition, Conduct and Consumer Protection
1: Interchange fees and two-sided markets: the case of payment cards
Carbo-Valverde's research supported a change in the way interchange and merchant fees were regulated in the European Union. Authorities such as the European Central Bank and the European Commission required a change but the existing theoretical grounds did not establish what was the optimal level of fees and how reducing fees would distribute welfare benefits among participants. Carbo-Valverde's research provided methodological tools and examples on how changes in interchange fees can affect the main participants in a two-sided market. A market is two-sided when the price structure, or the share that each type of end-user pays the platform, affects the total volume of transactions. Economic theory predicts that by lowering the optimal interchange fees some merchants not currently accepting card payments may start to accept them.
However, lowering interchange fees could increase cardholder fees and, consequently, some of them may abandon their payment cards or use them less frequently. Additionally, changes in external factors such as greater awareness of the benefits of payment cards or reductions in processing and credit intermediation costs may result in greater adoption and usage by consumers even when consumer fees increase resulting from interchange fees being lowered. The process for a change started in 2013-2014 and was completed in 2016. It affected 100% of European banks, 100% of merchants that use electronic payments and 100% of cardholders across Europe.
2: Assessment of Business Models and Macroprudential policies for mitigating risk-taking by financial institutions
Excessive risk taking and inadequate regulation and supervision of banks by financial authorities has led to the recent global financial crisis. To minimise financial risk and its spill-over to the non-financial sector, regulators need a comprehensive understanding of bank business models and macroprudential policies. Altunbaş' research, in collaboration with the Bank for International Settlement (BIS) and the European Central Bank (ECB), significantly influenced policy making decision on bank supervision through: i) bank business models and ii) macroprudential policies. Altunbaş' results shows that macroprudential policy mitigate systemic risk and stabilise credit cycles via bank's business models. Moreover, bank business model is relevant for raising the capital levels of institutions. Evidence of impact of Altunbaş' research is that central banks have incorporated the above findings into their policy deliberations.
3: Consumer inertia and product complexity in retail financial service markets
Research provided by Ashton has informed policy simplifying the terms and conditions of personal current accounts (also termed payment accounts) with estimated EU-wide 10-year customer benefits ranging between €2352.21m to €4582.90m. Other policy informed by this research and guided by Ashton's work with policy makers should have an estimated annual £300m benefit for UK cash savings market customers. The research examines product complexity and customer inertia in the personal current account and cash savings deposit markets. These markets are used by 97% and 94% of the UK population. Led by Ashton from Bangor University and with colleagues from other UK universities, the underpinning research examined interest rate and fee setting in the UK cash savings and personal current account markets. Ashton's research differs from preceding work through exploiting a unique, underutilized, and highly disaggregated data set of individual financial services and prices from Moneyfacts PLC. Employing this data, Ashton's work provides evidence that pricing is influenced by the complexity of product offerings and inertia in customer decision making; an area often overlooked in academic and policy research.