WORK IN PROGRESS

'Cyber Security and Cloud Outsourcing of Payments', with Noé Ciet (Université Paris Panthéon Assas).

Abstract:

We study the incentives of competing banks to outsource their payment services to a common infrastructure, managed by a private third-party provider (TPP). The TPP provider stores depositors' information in the cloud and offers compatibility services, but is exposed to cyber risk. In the first-best benchmark, the regulator chooses to build a common payment infrastructure when the marginal social benefits are higher than the marginal social costs, and chooses the welfare-maximizing levels of security investment for all players. If the market is unregulated, without cyber risk, banks outsource excessively to the TPP compared to the first-best because network effects soften competition for deposits. However, we show that cyber risk and the costs of security may reduce banks' incentives to join the third-party infrastructure, which may result in an inefficiently low level of interoperability of their payment systems. We examine how the liability regime for cyber incidents may improve the players' investment in security. We show that increasing the TPP's liability towards depositors has a higher impact on payment system security than increasing its liability towards banks. We discuss how several regulatory options impact the security and compatibility of banks' payment systems: supervision of outsourcing agreements, shared responsibility model, public provision of payment services.

'Bailout Policies when Banks Compete with Switching Costs', with Noé Ciet (Université Paris 2).
Abstract:
In this paper, we analyze the welfare effects of bailout policies when banks compete with switching costs. We compare no-bailout policies to systematic bailouts. We argue that no-bailout policies increase the interest rates paid by borrowers ex ante (i.e., before a shock), whereas they may reduce the interest rates paid by consumers who are not credit constrained. Such policies increase social welfare ex post if borrowers can easily switch banks and if the credit constraints are not too severe.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3402994

NEW PROJECTS:

'Competing Digital Monies', with Jon Frost (BIS), Hyun Song Shin (BIS), and Jean-Charles Rochet (University of Geneva).

'Artificial Intelligence and Money Laundering', with Luc Fortin (University Paris 2) and Marie Obidzinski (University Paris 2).

UNPUBLISHED RESEARCH PAPER:

'One-sided Access in Two-Sided Markets'.

One-sided-access-in-two-sided-Markets-Marianne-Verdier-FIDES.pdf