Topic : Rethinking bank shareholder equity
Supervisor : Yuri BIONDI@: firstname.lastname@example.org
Imke Graeff is a PhD student of the ESCP Europe (Paris Campus) and of Labex Réfi. She holds a bachelor’s degree in finance and insurance law from the University of Hamburg and a master’s degree in international accounting from the University of Glasgow.
Research interests: financial regulation, accounting standard setting, country differences in accounting and corporate insolvency.
The thesis introduces a new accounting method based upon the distinction between shareholder equity and the residual entity equity. Shareholder equity presents the actual contributions of shareholders to the bank entity. It allows for the analysis of bank’s equity position in light of a transformed idea of shareholding as experienced in recent years. The measure identifies and visualises equity transactions of banks relating to shareholders; and with it, allows for the analysis of the two main shaping forces of bank equity: financialized corporate strategy which seeks to economize the bank equity position; and regulatory capital which provides a risk buffer to absorb eventual losses. Addressees of these two forces are shareholders who pressure banks to follow generous distribution policies and society at large which demands a safe and sound banking system. This trade-off between return to shareholders and a sufficient equity base is well documented in the pre-crisis and post-crisis
period. Our analysis of shareholder equity position applies to nine European banks between 2001 and 2015. It reveals substantial distributions at the detriment of financial solvency concerns. Shareholder contributions to the bank entity as well as to regulatory capital were limited in the pre-crisis period, with rather modest improvements in the post-crisis period despite substantial capital injections. Findings suggest that, in an era of financialized corporate strategy, sufficient levels of high quality capital are essential to safeguard general interest and prevent banks to become financial investment vehicles for their shareholders.