The Banking Analytics Lab

I am recruiting up to two new Ph.D. students for entry September 2025. I am running a shorter recruiting cycle this year given the new constraints on international students (Deadline: December 2nd, 2024!). The ad below:

Ph.D. Position in Banking Analytics – Department of Statistical and Actuarial Sciences, Western University

The Banking Analytics Lab at Western University invites applications for a fully funded Ph.D. position focusing on financial contagion in corporate and consumer credit risk. This cutting-edge research project aims to understand and model the interconnected nature of credit risk across different sectors of the economy, with direct applications in banking and financial regulation.

Position Details:
– Full funding guaranteed for four years.
– Annual stipend of CAD$30,000.
– Direct collaboration opportunities with major banks and regulatory bodies.
– Access to unique datasets and computing resources, plus annual funds for travelling and expenses.

The successful candidate will:
– Develop novel methodologies for analyzing financial contagion using deep learning techniques in consumer retail, small business lending, and/or corporate lending.
– Work at the intersection of machine learning, statistics, and banking over real, challenging datasets solving problems at the forefront of modern banking.
– Contribute to both academic research and practical applications.
– Engage with industry partners and regulatory bodies.

Required Qualifications:
– Master’s degree in Statistics, Operations Research, Computer Science, Economics, or related fields.
– Strong quantitative and programming skills. Python programming and knowledge of modern methods (pytorch, polars, spark, arrow, duckdb) is a strong plus.
– Excellent written and verbal communication abilities.
– Demonstrated interest in banking and financial applications.

Application Process:
1. Submit your CV and academic transcripts by December 2nd, 2024 to cbravoro@uwo.ca. Please mention your GRE scores and TOEFL/IELTS or similar tests, if available.
2. Selected candidates will be invited for interviews that same week.
3. Successful interviewees will be invited to submit a formal application to Western University.
4. Final acceptance will be determined by the Graduate Affairs Committee.

To apply or for more information, please contact me at cbravoro@uwo.ca.

The Banking Analytics Lab values diversity and encourages applications from all qualified individuals, including women, members of visible minorities, Indigenous peoples, and persons with disabilities. This position is available to anyone, worldwide.

At least one of these positions will be cosupervised by Dr. María Óskarsdóttir at Southampton University. The job post is below:

https://lnkd.in/gZ92cxaZ

Our latest preprint is out! Check it out on ArXiV.

Imagine making important decisions—like adjusting credit limits or recommending treatments—where there are multiple options instead of only “yes or no”. In our latest research, we asked whether traditional methods of estimating causal effects are enough for these complex situations. But what exactly is a causal effect? Simply put, a causal effect measures how one action directly impacts an outcome—like how increasing a credit limit might influence a customer’s spending behavior. Typically, these causal estimates help us make the “best” decision, but we found they don’t always tell the whole story.

Our study dives into what’s called a “multitreatment scenario”, where the range of possible actions isn’t limited to just one choice. For example, adjusting a credit limit could involve not only deciding whether to change it, but also determining by how much. In our case, the outcome we aimed to optimize was continuous—for instance the expected profit from adjusting credit card limits, and also the outcome was observable both before and after treatment.

We explored a new method that combines causal effect estimation with additional criteria like uncertainty measures and a “prediction condition”. To truly enhance decision quality, we went beyond the traditional methods and added a fresh perspective. We brought in a measure called Conditional Value at Risk (CVaR), which allowed us to understand potential worst-case scenarios, not just the average outcome. Think of CVaR as a safety net that ensures we don’t overlook possible downsides while aiming for the best result.

We also introduced a “predictive condition” to help ensure our recommendations would actually be beneficial. Essentially, the predictive condition means we only recommend an action if we can confidently predict that the outcome will improve compared to where it started. In the context of adjusting credit limits, this meant that any suggested change had to show a clear increase in expected profit compared to the one corresponded to the original limit. This safeguard adds another layer of confidence, making sure that each decision made was a true upgrade rather than just a guess.

When applied to financial decision-making—adjusting credit card limits for consumers—we found that this combined approach outperformed traditional models. It wasn’t just about predicting the treatment effect, but also understanding how confident we could be about that effect while balancing it against other possible outcomes.

What makes this important is its broader applicability. Whether it’s deciding a financial policy, optimizing healthcare treatment doses, or managing resources, this refined approach could change how we navigate complex decisions. By blending causal analysis with a richer understanding of uncertainty, we can make recommendations that are not just statistically sound, but also practically more effective and personalized.

Our study is a step towards smarter decision-making in areas where “one size fits all” just doesn’t cut it. This work helps ensure that recommendations, whether in finance, healthcare, or any other field, are optimized not just for an average effect but for the best possible outcome across a range of real-world scenarios.

You can also listen to a machine-generated podcast of the preprint below.

I was on the panel once again, for the second time this month (no more until November though!), now discussing the latest inflation numbers and the 50 bps rate cut by the Fed. Like all panels, I got to speak about a couple of other topics too.

Rogers acquiring Maple Leafs Sports Entertainment.

With this, Rogers becomes the majority owner of the company, acquiring it from Bell. It gives them one of the most popular platforms for marketing in the country, and in the US as well, increasing brand recognition (through the Raptors). Interestingly, to avoid competition inquiries, Bell will have the option to renew their broadcast agreement at “fair market value”, including 50% content rights for the team’s games. However, this move gives Rogers though a near-complete control of the sports rights in Canada. They already own the Toronto Blue Jays, Rogers Centre and Sportsnet, plus many other investments in teams across the country.

From Bell’s point of view, this eases financial pressures the group has been feeling for a while now, following their plan to streamline operations. Bell wants to focus on tech and comms, nothing else. This deal really showcases the value of Canadian sports teams. The Maple Leafs are the NHL most valuable team, but the Raptors are also the 10th most valuable team in the NBA.

Inflation and the Fed Rate Cut

We are seeing that inflation is at a low point now, both in terms of the base-year effect (comparing it to a very high price last year) and momentum in the economy slowing down. Gas is the main reason the CPI has slowed down so much. That one is both seasonal and base-price effect. If you adjust by seasonality, the CPI rose a little bit. The biggest contributors are housing costs (both rents and mortgages). As interest rates are coming down, people on variable rates are having a lower cost, so mortgage costs increases are moderating (“only” 18.8%, coming down from 30.9%), but they are still very high in comparison to a few years ago. Rent costs are still high with no sign of slowing down, which has more to do with landlords passing the higher mortgage costs onto renters, and the very tight housing market we know they are in. Another interesting movement is the drop in clothing and footwear. Normally, August sees price increases, but demand has been very slow for these products, leading to a decrease in prices. Most likely, the lower disposable income that families have is starting to permeate across the economy.

So, what does this mean? It means the economy keeps slowing down, now at a lower pace than even the BoC likes. The question is what does the BoC do in October. There is still one more report on inflation next month, so if we see this slow down is persistent and remains below their target, they may consider giving a boost to the economy, in the form of a 50 bps instead of 25 that the market expects. The last important topic is what the Fed behaviour means for Canada. The BoC started with rate cuts a lot earlier, we are already on our third, so, while there cannot be much disparity between our rates and the US’, we are nowhere near that. We should keep our monetary policy independent of the US’ now. If anything, this supports the BoC decision to start cutting rates early.

Tupperware going bust

The company declared Chapter 11 bankruptcy, so this means it will probably not die completely, but restructure and come back in a different form. Tupperware is a multi-level marketing company. These companies depend on the considerable labour force that they have. Over to 465k collaborators worldwide. They make a very limited amount, though, like all MLM companies. The average collaborator (“consultant” as they call it) made US$ 525 per year. The FTC said in 2008 that 99.7% of all consultants lost money when selling their products.

Several factors led to the company’s woes: Their business model not adapting to the 21st century online dynamic, a poor supply chain, and the commoditization of their wares (the moat as it’s so trendy now to say). This even happened as the market for plastic containers has kept growing, it’s just split far more. Over CAD $2b in sales last year. That’s 18% more than before the pandemic. However, competition and the fact that their product is a commodity by now (a Generic Trademark), really impacted their bottom line. After having been acquired in part by private equity, they had to fight being sold in pieces.

To me, this also shows the failure of the MLM business model. Which maybe is a good thing. MLM schemes are not really economically sound business models for the collaborators. There are even internet forums and websites dedicated to calling them out.

I got to be at the CBC News’ panel once again this weekend. We discussed three topics:

The Equifax report that showed an increase in arrears in Canadians between 26-35. While the increase is modest, this segment of the population is one of the most vulnerable ones. I don’t think there is any structural issue that would threaten the overall economy, but it does identify a segment of the population that are financially stressed.
Flair Airlines’ $1 base fare. A nice marketing gimmick, that has been shown to increase competition moderately with a 1% to 5% reduction in prices.
LEGO is now aiming to produce 50% of their plastic from recycled materials by 2026, after failing to meet a 100% goal previously stated. Legos were shown to be the most polluting plastic toy, because of the ABS plastic they create their bricks with. These new goals are less ambitious than their previous ones, and show how challenging it is to reduce dependence on plastic. Environmentally conscious consumers will be better serve by using their Legos for longer instead of shopping for recycled ones.

Give a watch to the business panel below. As always, comments are welcome!

It’s rare that I get to speak more about the tech side of my Fintech expertise (beyond AI, of course), but with the CrowdStrike bug making a mess around the world, I had the chance to do so on Saturday at CBC and Friday at CTV.

We discussed the impact of this on the financial system, and potential future measures to take given this critical infrastructure’s vulnerability. My take here is that we don’t put the same level of scrutiny to software companies as we do physical infrastructure, even though the consequences of a severe outage of the former can be just as severe. We trust that the companies themselves will have teams that do sufficient quality control. Why? For most critical systems, we require independent verifications. Why not for these companies that supervise, with full privileged access, a big chunk of the corporate systems?

Watch the Weekend Business Panel at the link below!

I was asked my opinion on the latest inflation numbers today by Global News. I got to try Western University‘s new studio! Green screen and all.

In summary: Almost in line with what was expected, 2.7% vs 2.8%. There is an 86% chance of a cut next week, but I doubt it will be more than 0.25%, too early to stimuli the economy too much.

The lighting was a bit too strong, so I had to take off my glasses xD. Give it a watch at the link below!

Bank of Canada rate-cut odds rise after June inflation release

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This is a bit late, but last month I was very popular after the interest rate decrease by the BoC. Western asked me to write an explainer, which they told me was the most visited article at Western News! I am copying it here for posterity. I also beat a personal record: I had five interviews in 24 hours. It was really a topic that garnished a lot of attention! I appeared in the London Free Press, The X, CHCH News, CFPL News, and Global Radio.

It was great to see that I nailed my prediction too. For July, the rate should remain stable. Too early to tell the consequences of the economy of the very first one. I fully expect a decrease in the September announcement, though. The explainer follows:

Western News: Can Canadians expect an interest rate cut?

Cristián Bravo: Given the latest downward trend on inflation and economic growth (the production of goods and services in an economy), the idea of a rate cut is much more likely. We are seeing a generalized cooling down in the economy that has been persistent over a nine-month period, signalling that the efforts by the Bank of Canada have been successful. The fact that growth is now lower than expected, makes it more likely that the Bank of Canada will decide to ease on their position and start lowering the rate and seeing how the market reacts.

It will need to balance the potential risk of stimulating the economy too early, thus leading to a return of inflation, versus the chance that the slowing growth trend continues, and we enter a recession, as we seemed to have been on the edge of during the last two quarters of 2023.

Why would the Bank of Canada not cut rates?

CB: What may give the Bank of Canada pause are the numbers in the U.S.

The economy there is still in excess demand and inflation has not eased. There has been significant volatility in the core consumer price index and consumption numbers, meaning that not even the Federal Reserve knows the right path to take. This affects us, as the Canadian rate and the U.S. rate cannot diverge too much, or the Canadian dollar will lose value significantly against the U.S. dollar, undoing some of the efforts of the Bank of Canada.

The Bank of Canada does have leeway to lower the rate but needs to be cautious because if the U.S. decides to keep rates high for a while, then we won’t be able to lower them at a higher speed. So, a moderate decrease of 25 basis points (or 0.25 per cent) is likely, although I wouldn’t be surprised if they decide to keep it at its current value and wait until the July meeting to see how the American economy evolves in relation to our own.

What role does inflation play in monetary policy?

CB: Inflation, growth and employment are the trinity of monetary policy. The Bank of Canada controls, through their policy rate, the price of lending money, and this directly controls how much money is available to go around. Too much money related to our capacity to produce goods and services leads to inflation. Too little, leads to a credit crunch and thus decreased growth.

Jobs are directly tied to this. An overheated economy, or an economy without as many workers as needed (as we had a few months ago), leads to inflationary processes, while an economy in depression leads to job losses as businesses need to adapt to the lower demand for their products and services. So, the Bank of Canada’s role is to set the incentives to either stimulate the economy, or to disincentive spending, and this is done by changing the cost of borrowing funds through monetary policy.

What are the benefits of raising or lowering lending rates?

CB: Lower rates mean more incentive to lend money, and thus to invest, hire, spend and produce more. If this is tied to a real need for those goods and services, then growth happens, salaries increase and employment grows. If there is more money than needed in the economy, and we are observing inflation as we were last year, then a higher rate has the opposite effect, disincentivizing spending and demand. The tricky part is reaching a rate that leads to sustainable levels of employment and spending so that we achieve growth and higher salaries while producing goods and services that are aligned with local and global demand.

A new panel is live, and now we are featured on the CBC website! This time we spoke about three topics:

The DoJ suing to split back Ticketmaster / Live Nation: The most significant change versus previous attempts is that now they managed to get everyone angry. Artists, venues and consumers are all affected. Oddly, due to weak antitrust laws in the US, consumers are not considered direct customers of Ticketmaster, so now that artists and venues are shown to be affected, the DoJ could intervene. If successful, this should increase competition in the artist/venue space, not in the consumer one, so don’t expect ticket prices to come down anytime soon.
The new low fare from WestJet: WestJet is moving towards an Ultra Low-Cost Carrier (ULCC) model, charging now for the carry-on baggage. This is common in European ULCC, such as EasyJet and others. Changes like this are great for the company as they save on fuel, save on airport fees and taxes, and provide marginally better customer service to those who require overhead bins as there is less demand for them. It also comes with a modest 2% decrease in fares in competitive routes. However, the cost is more fare dispersion. Now you won’t really know what the final price of your ticket will be, and you will need to plan a bit ahead to what you want to bring with you. Also, airports may need to rethink their fee structure, considering they are normally tied to the base price of the ticket.
Inflation: The latest inflation numbers were positive for Canada, with a 2.7% annualized rate. However, and what I spoke about in the panel, I expect the BoC will be a bit wary of being too aggressive lowering the interest rate, given the US is still suffering high inflation and the rates between the two countries cannot diverge too much.

Give it a watch and comments always welcome!

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I was at the CBC News’ Weekend Business Panel this week, speaking about some interesting news that happened. Sadly, the CBC changed their policies, and now we don’t get a video of our participation, so I will be publishing these short summaries after every time I appear. This week we spoke of:

The MLS judgment in the US that may change the incentive structure of realtors: Looking at this from a pure incentive structure, the realtor business is poorly constructed. The buyer pays commission to their realtor based on a percentage of the purchase price, which means there are no economic incentives for their realtor to get them their best price (although they do have a fiduciary duty).
- The lawsuit in the US will change the structure of the process. It will now require a contract between the realtor and the buyer directly, with agreed fees, before showing houses. Buyer representation agreements are already common in Canada, this lawsuit splits the buyer and the seller’s commission, thus providing incentives to realtors to lower their fees when representing the buyer.
  - There is a new rule prohibiting offers of broker compensation on the MLS, and from creating rules that would permit a seller’s agent to determine compensation for a buyer’s agent.
  - However, this also means homebuyers will have to consider an extra closing price, instead of the now baked into the mortgage fee. Fees should come down but will also need to be paid up front.
  - In the US, the realty companies are saying they will not change their practices, as nothing in the judgment forces them to. There is a difference in interpretation on what the judgment actually means. This will most likely lead to new lawsuits if the actual implementations differ for what the other side interpreted.
Home Depot’s acquisition of building material supplier SRS Distribution. Home Depot’s thinking is that growth will come from contractors as opposed to retail, that boomed during the pandemic and is now coming down. Their bet is that construction of new homes and government plans to stimulate construction in general will mean higher sales than what they are seeing in their stores.
- Home Depot said that when taking the deal into account, it now believes its total addressable market is approximately $1 trillion, an increase of approximately $50 billion. Home Depot controls 17% of the market.
- One pain point in Home Depot has always been logistics, one of SRS’ strengths with their warehouses and truck fleet. This can bring synergies into their main business, even though SRS will continue operating as an independent entity. Through the deal, expected to close by the end of fiscal 2024, Home Depot will add SRS’ network of more than 2,500 professional sales force in 760 plus locations to its footprint of over 2,000 U.S. stores and distribution centres. It would also allow Home Depot to take advantage of SRS’ more than 4,000 truck fleet and job site delivery capabilities.
- There is still regulatory approval necessary. I am sure Lowe’s will have something to say about this deal. Maybe I’ll get to talk about this later again.

Cocoa prices have reached their highest value ever, hitting USD $10,000 per tonne. This is caused by a multifaceted problem. Short term: El Niño and West Africa pests, the swollen-shoot virus and black-pod disease, have been causing havoc with plantations. Just the Swollen-shoot virus affected 20% of all cocoa trees in the Ivory Coast. The war in Ukraine has also caused the sugar prices to go up, thus impacting further the price of chocolate.
- Long term, though, there is a geopolitical issue. Farmers get about 5% of the price of a bar, or 30% – 50% of the price of a tonne of cocoa. Each producer can make around 1 tonne per year, thus the income of a farmer is around USD $5,000 yearly at best. This has lead to unsustainable practices. 14% of the Ivory Coast and 11.5% of Ghana are cocoa plantations and many are planted in protected areas, 37% of the Ivory Coast and 13% of Ghana’s deforestation comes from cocoa planting.
- Any solution is super complex. As hard as solving hunger in Africa. Only a mixture of better governments, better access to sustainable farming training and supplies, less corruption, more development and a strong coordination between governments and international agencies can tackle this. Sadly, to me, this hints we won’t see chocolate prices come down anytime soon, and if the underlying issues are not resolved, we will end up with chocolate scarcity in the long term.

Happy to hear your thoughts about this. I’ll be again next time in May. Always a fun experience!

The Association for the Advancement of Artificial Intelligence (AAAI) conference is recognized as an elite conference in the field of artificial intelligence (AI), gathering a community of academic and industry experts engaged in both theoretical and applied AI research. The 38th AAAI conference was held in the city of Vancouver, Canada, from February 20^th to 27^th. It offered an excellent opportunity for sharing research work in AI, bridging potential collaborations, and offering the guidance of the direction of AI innovation.

Both Cristian and Jet attended. Jet presented our latest research: “Breaking Barriers: Unveiling Gender Disparities in Corporate Board Career Paths using Deep Learning.” This research was showcased in two workshops: the AI in Finance for Social Impact, organized by J.P. Morgan, and the AI for Financial Services, highlighting the cross-disciplinary impact and relevance of our work. In the former, the lab was also represented in the work “Extreme climate events and credit risk: stress testing approach for loans to SMEs based on network analysis”, presented by the PhD candidate Camilla Carpinelli, part of the group led by Prof. María Óskarsdóttir, at Reykjavík University.

Celebrating Recognition: Best Poster Award

Our collective efforts were recognized with the Best Poster Award at the workshop, a moment of great pride and joy for our team. We extend our deepest gratitude for this honour to the organizers, reaffirming our commitment to contributing meaningful insights and solutions in the realm of AI and social impact in banking.

Networking, Collaboration, and Future Horizons

The AAAI conference provided an excellent opportunity for engagement with the community of AI in Finance. Our team had a great time to meet, network, and exchanging ideas with fellow researchers and practitioners from both academia and industry. Notable interactions included enlightening discussions with peers from prestigious institutions and companies such as CMU, J.P. Morgan, and Capital One, among others.

As we reflect on our experiences at the AAAI conference, we are filled with gratitude for the opportunity to contribute to and partake in the global dialogue on AI. We look forward to attending the next one in 2025!

Older Posts

Blog

Ph.D. Recruiting 2024: Deadline December 2nd!

New Preprint! Are Causal Effect Estimations Enough for Optimal Recommendations Under Multitreatment Scenarios?

CBC News Weekend Business Panel – Rogers acquiring MLSE, Inflation and the Fed, and Tupperware going bust

CBC News Weekend Business Panel – Youth Arrears, Flair and LEGO

CBC News Weekend Business Panel – The CrowdStrike Bug

Inflation Numbers Interview at Global News

Interest Rate Announcement Coverage

Weekend Business Panel – May 25th, 2024

Weekend Business Panel – March 30th, 2024

Award Winners at the AAAI Conference!

The Banking Analytics Lab