Center for Innovative Finance
Research
Blockchain / DLT
Blockchain is an innovation in governance and can create a neutral infrastructure. It enables us to create, hold and transfer virtual assets in the absence of centralized intermediaries and has the potential to fundamentally change the existing financial infrastructure.
The CIF investigates the potential and risks of these new technologies and assesses the extent to which they will affect financial markets, industry, and society. In addition to its foundational research, the CIF has a particular focus on policy and societal implications.
The blockchain has allowed digital property to be represented and safely managed in a decentralized manner for the first time in history.
Berentsen und Schär (2017)
Venturing
The development of groundbreaking research, e.g., biomedical research aimed at curing cancer, or the development of more effective antibiotics and medicines for treating rare illnesses, demands enormous investment over a long period of time (10—20 years). Only a few of the research results become marketable products, but the ones that are successful are potentially highly valuable to society. They improve health, employment, education and knowledge.
The financial instruments that are currently available, such as common equity, venture capital and loan capital, are not suitable for investments of this kind. It is therefore necessary to develop new types of funding instruments. These new vehicles use financial techniques that diversify risk in large investment funds, thereby making investments in innovative research and development attractive to a larger number of investors. Moreover, by issuing debt and equity tranches, innovation funds of this type can provide investors with different risk-tolerance levels access to the capital market, and thereby further extend the investor base.
The CIF is concerned with the question of how to eliminate barriers to financing innovation. This research is particularly relevant for the metropolitan region of Basel, which is home to two of the world’s largest pharmaceutical companies and many biotechnology and medical technology companies.
The life sciences sector is of paramount importance to Switzerland, and particularly to the region of Basel.
Gantenbein (2011)
Quantitative Finance and Innovation
One of the major functions of capital markets is the allocation and transfer of economic risks. The past few decades were marked by substantial changes in the patterns of finance and investment: Private equity-investment vehicles mobilized an enormous amount of money that was available for start-up firms and other innovative companies. Innovative refinancing structures for bank credit and mortgages were less successful (structured credit products). These types of product were responsible for triggering the Financial Crisis of 2007/08, which demonstrates that financial innovations can have unforeseen social consequences. Economic research about the social consequences of financial innovations is therefore extremely important, but it is often neglected.
Further examples of financial innovations that need active monitoring and economic analysis stem from the impact of the current disintermediation process on the credit-issuing services of banks, owing to their tighter capital requirements and increased financing costs, or stem from the new methods used to increase the insurance sector’s risk-capacity (so-called reinsurance structures).
The CIF will address the social risks and opportunities presented by innovative financial products. This research is vitally important for Switzerland, as it is a very large financial center with the respective opportunities and risks.