ENHANCED EFFICIENCY OF CONSOLIDATED SUPERVISION BASED ON DIAGNOSIS OF BUSINESS MODELS OF BANKING GROUPS

Abstract

An analysis of business models of participant banking groups allows one to further understand the organization of banking business and the risks associated that a financial institution encounters, during its financial transactions/ activities. The study has showed that certain banking groups are implementing similar business models and risk concentration areas, the understanding of which allows the regulator to increase the efficiency of supervision on a consolidated basis and ensure the stability of the financial/banking system.Based on the clustering method, four types of business models of the banking groups in Ukraine are identified: universal, corporate, corporate with retail financing, retail. Some "small banking groups" are classified as non-typical functional. Empirically,it is proved that method of mathematical clusterization should be supplemented by the method of grouping by the factor levels,which further allows the probability to allocate by groups , whose average indicators confirm the belonging of the given banking group to be related to a certain typical business model. For assessing stability of banking groups, the canonical model "Risk-Stability" has been built and studied. Its analysis allows asserting that the banking groups belonging to a corporate business model have relatively high credit and currency risks, and therefore the regulator needs to carefully monitor how the bank increases its requirements to capital and profitability according to the increase in the acceptable risk. Also, in each business model, individual banks have been identified whose activity involves a highest risk. For assessing stability of banking groups, the canonical model "Risk-Stability" has been built and studied. Applying fuzzy logic methods has allowed to substantiate applying enhanced banking supervision over the activities of individual banking groups.