Incomplete picture of credit risk poses a threat to financial stability in the capital market

September 22 2023

Credit ratings do not always provide an accurate or complete picture of the risks of a financial product, according to Vivian van Breemen, who will be obtaining her doctorate at Nyenrode Business Universiteit today. Van Breemen’s research shows that an inaccurate assessment of credit risks in the capital market poses a significant threat to international financial stability.

After obtaining her Master’s in Economics at the University of Groningen, Van Breemen completed a second master’s degree program in Finance at Nyenrode Business University. That is where she wrote a thesis on the same subject on which she is obtaining her doctorate this time around, under the supervision of Prof. Dr. Dennis Vink. “During the completion of my thesis, I was offered a job at De Nederlandsche Bank (DNB) in the banking supervision division of the banking supervision. At the same time, I was offered the opportunity to start a PhD program at Nyenrode, under the supervision of Dennis Vink. So, optimistically, I decided to take on both. This turned out to be the perfect combination, since my PhD research answers questions that are very relevant to central banks, such as DNB and the European Central Bank (ECB), where I am currently employed.”

Unique setting with actual impact

Van Breemen's doctoral research focuses on the European and US bond markets in the period 1995 to 2021. These regions and time span represent a large part of the global market and were strongly influenced by the financial crisis of 2008. “This created a unique setting for me to investigate the impact of the crisis on this market, including the influence and effectiveness of new international rules and regulations that have been implemented after the crisis.” In her research, Van Breemen analyzes financial bonds with a total value of trillions of Euros and she has examined whether the credit risks of bonds are accurately estimated by credit rating agencies. “My research shows that there are risks that credit rating agencies do not, or do not fully, take into account in their credit rating, but that actually are a risk for investors, regulators and supervisors.” These risks are caused, for example, by sub-optimal legal frameworks, competition between credit rating agencies or the design of the credit rating market. “In my research, I provide concrete recommendations on how to optimize legal frameworks and point out many previously unknown risks in the bond market to investors, legislators and regulators. Risks that they should ideally include in their risk assessment.”

International focus

During her research, Van Breemen has worked with experts from the US, Germany and the Netherlands. “The international focus during my PhD program was very valuable to me. It gave me the opportunity to work together with various academics and I have been able to present my research at well-known international conferences in amongst others New York, San Diego, Paris and Lisbon. I have also discussed my results and recommendations with supervisors, academics, credit rating agencies and regulatory bodies. Meanwhile, I can now proudly say that almost all of my research has been published in several leading scientific journals and the Working Paper Series of DNB and the ECB!” Currently Van Breemen works at the ECB, where she deals with topical risks in the European banking sector. “I receive a lot of energy from intellectual challenges and enjoy substantiating complex practical issues with scientific research. I have already initiated a new research project at the ECB, focused on the impact of bank board diversity on the profitability of European banks. In my work I find it important that I make an actual contribution to society. Going forward, I would also like to help other young colleagues in their careers, for example from a leadership position.” Van Breemen would like to grow into a management position and ultimately aspires a board position in the financial industry. “I think it is good to work towards a goal. However, I am flexible and always open to new opportunities that come my way!”

Nyenrode newsletter

Nyenrode shares knowledge with interested professionals. Apply to news@nyenrode for al news of Nyenrode.