Institutions

The research programme Institutions is vital and covers all financial aspect of optimal organization, regulation and management of institutions.

Banks are of core interest—as of mid-2015, Luxembourg hosted 143 (CSSF) banks with roughly 25,000 people working in these banks. Yet insurance companies, regular (manufacturing) firms, national central banks like Banque Central de Luxembourg, financial supervisory agencies like Commission de Surveillance du Secteur Financier (CSSF) and supra-national institutions like the European Central Bank or the European Stability Mechanisms are all important to understand, from an economic perspective as well as for Luxembourg as a country.

Within Risk Management and Insurance, we look at the idiosyncratic risk of firms and banks. Risk management provides guidance on how firms shall set up safety nets to deal with these risks. It has gained substantial interest in the light of the recent financial crisis since bank regulators are now particularly interested in the risk management organisation of banks. Combining our know-how on risk management and our expertise in the analysis of large data sets, we explore insurance and re-insurance databases to deepen our understanding of financial risk.

Financial institutions are particularly affected by laws and regulations. Our research in finance, law, and economics is highly relevant for the financial sector—especially for its challenges after the financial crisis, but also in times of a fast developing and digitized environment. It covers questions of optimal regulation, bankruptcy law, and compliance. We investigate determinants of firm financing under various bankruptcy laws but also the impact of financial market regulation. Compliance is raising questions on how economic agents implement relevant regulations and how they can adapt their internal organisational structures to market uncertainties.

We also investigate questions regarding:

•  the financing of firms: How do firms finance investments? What is the (optimal) capital structure of the firm? If firms take on debt, are they more likely to tap public debt markets or is funding from banks more beneficial for firms?
• the specific financing needs of small and medium enterprises (SMEs)
• why authorities provide support to some banks during financial crises whilst at the same time let some others go bankrupt.

In a sense, this research programme covers the basic problem of finance: How do we create a financial system such that capital is used in those investment opportunities that promise the greatest benefit to society?

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