Evaluating the effectiveness of structured financial instruments in the commercial bank's ecosystem

Subject. The article considers the process of effective operation of structured financial instruments in the ecosystem of a commercial bank. Objectives. The main purpose is to evaluate the economic viability of structured financial instruments in the commercial bank’s ecosystem. The primary targets include defining the position of structured financial instruments in the bank’s ecosystem, revealing their performance criteria, and evaluating their cost parameters for the profitability of the bank and its customers. Methods. We employ the systems analysis, which enables to provide the integrity of the study, the comparative and statistical analysis of the data that determine the rate of return and efficiency of structured financial instruments in commercial bank’s ecosystem, and unveil the interrelation and interdependence of analyzed parameters. Results. We define the position of structured financial products in the ecosystem of the bank, analyze their efficiency, and formulate proposals to improve their performance. Conclusions. The evaluation of economic effectiveness of structured financial instruments in commercial banks’ ecosystem demonstrates that raising funds from customers in structured products is always profitable for any bank. Therefore, it is important to improve the process of structured financial instruments’ development and operation in the bank’s ecosystem, and to aim at enhancing the product quality for customers.

What is your desire? Retail investor preferences in structured products

PurposeThe authors evaluate the preferences of retail investors with regard to the investment in structured financial products. The purpose of the paper is an analysis of the relative importance of key product attributes namely the issuing bank, the product structure, the associated costs and the disclosed risk.Design/methodology/approachThe authors conduct a choice-based conjoint analysis, based on an online experiment. Participants judge their preferences for products which are presented by shortened key information documents according to the requirements of EU regulation.FindingsInvestors consider the costs and the product structure to be most important, whereas the issuer and information on risk are of less interest. Their preferences depend on their (self-evaluated) expertise: while inexperienced retail investors concentrate on costs, experienced investors pay more attention to the product structure.Research limitations/implicationsThe study is limited to a subsegment of the market, the discount certificates. For these products, issuing banks gain insight into the attractiveness of their products. Furthermore, the study carries implications for regulators: since investors emphasize the costs in their decisions, an unbiased disclosure of costs should be enforced.Originality/valueWhile the recent literature has studied preferences for the investment in mutual funds, this is the first paper which directly analyzes the drivers of an investment in structured retail products.

PRACTICE OF APPLICATION OF STRUCTURED FINANCIAL PRODUCTS IN THE CONDITIONS OF MODERN ECONOMIC REALITIES

The article is devoted to the analysis of structured products that quickly meet the development trends of the financial and commodity markets. Investments in these types of financial instruments are quite complex in terms of understanding the mechanism of their formation, which requires closer attention to the study of the use of structured products in practice.

Rising intra-firm corporate debt poses stability risks

Subject Global debt risks. Significance Global indebtedness is slowly declining -- down to 234% of GDP in 2018, after rising from 202% of GDP in 2008 to peak at 245% of GDP in 2017. The drop is consistent across the household, corporate and government sectors in both advanced and emerging economies. Ultra-low interest rates and abundant liquidity provided by unconventional monetary policies drove the increase in advanced economies. Expansionary domestic policies, subdued inflation and liquidity from advanced economies searching for yield encouraged emerging economies' indebtedness. Impacts Research shows that only 33% of credit booms end in crisis, but deleveraging in most major economies will nonetheless dampen growth. High-risk structured financial products and lending by ‘shadow’ non-bank channels has surged, raising the risk of panic in a downturn. Global average household debt is moderate, but pockets of risk include nations with booming property prices or student loan markets. In low-to-lower-mid-income emerging nations, exchange rate risk is very high as 80% of cross-border loans are dollar-denominated. Fears about China risk masking other nations; debt-to-GDP in other emerging economies is growing faster than advanced nations' debts.