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The psychology of consumer credit risk management: Impact on the UK payment protection insurance (PPI) market

Summary of the impact

The research group investigated UK borrowers' payment protection insurance (PPI) decision making using randomised-groups experiments and a novel cognitive process-tracing methodology. This contributed to the design and interpretation of a consumer survey, a key element of the Office of Fair Trading's 2006 market study of PPI, via the involvement of the principal investigator as consultant. The survey played a major role in the referral of PPI to the competition commission and subsequent major changes implemented by the FSA to the regulation of the PPI market and associated consumer support. This has been of direct benefit to millions of UK borrowers and has also had a major impact on the competitiveness of the UK personal insurance market.

Submitting Institution

University of Bolton

Unit of Assessment

Psychology, Psychiatry and Neuroscience

Summary Impact Type

Economic

Research Subject Area(s)

Mathematical Sciences: Statistics
Economics: Applied Economics
Commerce, Management, Tourism and Services: Banking, Finance and Investment

Improving Access to Finance for UK SMEs

Summary of the impact

The UK Survey of SME Finances (UKSMEF) was conceived and developed by Dr W.S. Fraser to provide policy makers, and other users of the research, with a detailed analysis of SMEs, their owners and the availability and cost of finance. This innovative UKSMEF project has had sustained and on-going impact, playing an essential part in informing national policy to address the financing of the SME sector, and has resulted in providing SMEs with better access to finance opportunities, as well as leading to initiatives such as the Enterprise Finance Guarantee and the Ethnic Minority Business Taskforce. As a result new sources of finance for SMEs have been created and the UKSMEF has provided an on-going evidence base for policy-makers, aiding decision making and policy development.

Submitting Institution

University of Warwick

Unit of Assessment

Business and Management Studies

Summary Impact Type

Economic

Research Subject Area(s)

Economics: Applied Economics
Commerce, Management, Tourism and Services: Banking, Finance and Investment

Understanding where money comes from and applying credit creation analysis to portfolio management

Summary of the impact

Research carried out at the University of Southampton into banking, economic growth and development has made Professor Richard Werner a trusted source of advice for economic policy-makers at the highest level, for example for the Financial Services Authority, the Independent Banking Commission, the International Monetary Fund and the Bank of England. Through articles, books and many media contributions, he has promoted a greater public understanding of economics and the financial crisis. His credit creation analysis has also been adopted by two investment funds in their portfolio management, leading to financial gains for investors, outperforming the FTSE100.

Submitting Institution

University of Southampton

Unit of Assessment

Business and Management Studies

Summary Impact Type

Economic

Research Subject Area(s)

Economics: Applied Economics, Econometrics
Commerce, Management, Tourism and Services: Banking, Finance and Investment

Developing and governing sustainable credit unions in the modern financial services industry of Ireland

Summary of the impact

Professor Wilson's research has increased understanding of how credit unions have developed in different countries, with the intention of informing policy around these institutions. Such work is especially important in the aftermath of the financial crisis in 2008, as many countries seek to strengthen their retail financial sectors. The research has had wide-ranging impact internationally on the ways in which policy makers, regulators and practitioners view the sector. Specifically, as part of the Irish Commission on Credit Unions, Wilson's work was taken up in reports which made a raft of recommendations that were later adopted to form the basis for new legislation (Credit Union and Co-operation with Overseas Regulators Act 2012). This new legislation in turn has affected the governance, regulation, stabilisation policy and structure of the credit union sector in Ireland.

Submitting Institution

University of St Andrews

Unit of Assessment

Business and Management Studies

Summary Impact Type

Economic

Research Subject Area(s)

Economics: Applied Economics
Commerce, Management, Tourism and Services: Business and Management

Catalysing credit unions to meet future challenges

Summary of the impact

A portfolio of research on the structure, conduct and performance of credit unions has led to the following impacts:

  • in the $, the introduction of new legislation and the establishment of a restructuring board to ensure the sector's long term sustainability; and the development of a stabilisation policy to include a deposit insurance mechanism to protect savings, a mechanism to support credit unions in temporary difficulty and a failure resolution mechanism; and
  • assessment of the effect of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act on merger and acquisition activity in US credit unions.

Submitting Institution

Queen's University Belfast

Unit of Assessment

Business and Management Studies

Summary Impact Type

Economic

Research Subject Area(s)

Economics: Applied Economics
Commerce, Management, Tourism and Services: Banking, Finance and Investment, Business and Management

Credit risk modelling

Summary of the impact

Research of Professor Brigo in the areas of credit risk, pricing models for the valuation of counterparty risk, and the development of accurate calibration methods of various credit risk models has generated significant impact both on public policy and on practitioners and professional services. His models were implemented and his calibration methods adopted in the financial industry. The significance attached to his work by the industry also resulted in a collaboration with the German regulator (BAFIN). Further evidence of his impact can be found in the fact that a Court of Law based its analysis in a financial intermediation case on Brigo's research.

Submitting Institution

King's College London

Unit of Assessment

Mathematical Sciences

Summary Impact Type

Economic

Research Subject Area(s)

Mathematical Sciences: Statistics
Economics: Econometrics
Commerce, Management, Tourism and Services: Banking, Finance and Investment

Improving the way consumer credit risk is assessed

Summary of the impact

Credit scoring, the process of estimating the risk of lending to consumers, has traditionally estimated the likelihood of default over a fixed period, usually 12 months. Research carried out at Southampton's School of Management has led to a gradual shift by many financial institutions in the UK and elsewhere towards an alternative method that estimates default over any period. This approach provides accurate risk estimates over any time period. It also allows for the inclusion in the "scorecard" of economic conditions and the lending rates charged — features whose absence from previous scorecards was identified as contributing to the sub-prime mortgage crisis.

Submitting Institution

University of Southampton

Unit of Assessment

Business and Management Studies

Summary Impact Type

Economic

Research Subject Area(s)

Mathematical Sciences: Statistics
Economics: Applied Economics
Commerce, Management, Tourism and Services: Banking, Finance and Investment

Designing the Next Generation of Retail Credit Risk Models

Summary of the impact

Research carried out by members of the Credit Research Centre (CRC) at the University of Edinburgh has changed the way that credit risk modelling teams in major multinational retail banks think about and model the probability that an applicant will default on a loan. Such models are used monthly to assess the risk associated with most of the 58 million credit cards in the UK and hundreds of millions of credit cards elsewhere in the world. The research has also changed the way banks model a crucial parameter in the amount of capital they have to hold to comply with international regulations, and has allayed their concerns about estimating models based on only samples of previously accepted applicants.

Submitting Institution

University of Edinburgh

Unit of Assessment

Business and Management Studies

Summary Impact Type

Economic

Research Subject Area(s)

Economics: Applied Economics, Econometrics
Commerce, Management, Tourism and Services: Banking, Finance and Investment

CREDIT MANAGEMENT RESEARCH CENTRE (CMRC): Improving credit management practice, influencing policy and enabling knowledge transfer

Summary of the impact

The ability of companies and organisations to pay and recover debts affects and reflects the financial health of UK PLC. Research by the Credit Management Research Centre (CMRC) led by Professor Nick Wilson has directly influenced UK government policy and regulation, leading to the development of tools and guidance to alleviate short and long-term financing problems for large and small businesses and organisations. The research has improved understanding of alternative forms of corporate finance for new ventures, growth and corporate restructuring. Improved knowledge has been gained on why some businesses grow and others fail in relation to financing, financial management and governance. Research has led to changes in the debt management systems and procedures in the public and private sector.

Submitting Institution

University of Leeds

Unit of Assessment

Business and Management Studies

Summary Impact Type

Economic

Research Subject Area(s)

Economics: Applied Economics
Commerce, Management, Tourism and Services: Banking, Finance and Investment, Business and Management

Improving access to financial services for UK low-income households

Summary of the impact

The Personal Finance Research Centre (PFRC) at the University of Bristol conducted a major research programme that shaped UK financial inclusion policy and informed research and policy internationally. PFRC carried out seminal research to measure the level and nature of financial exclusion in the UK. Subsequent studies looked at ways of improving access to banking, credit, insurance and savings that could reduce the `poverty premium' paid by low-income households. PFRC's research directly informed UK central government policy which resulted in the successful achievement of a shared government-banking industry target to halve the number of adults in households without a bank account (from two million to 890,000) and funding to extend affordable credit union loans and savings products to an additional one million low-income people.

Submitting Institution

University of Bristol

Unit of Assessment

Geography, Environmental Studies and Archaeology

Summary Impact Type

Economic

Research Subject Area(s)

Economics: Applied Economics
Studies In Human Society: Policy and Administration

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