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The purpose of this paper is to calculate the bank efficiency of removing potential risks that are hidden from the extreme portfolio of bank’s assets and further compare the differences and causes of bank’s efficiency and potential risk level between China’s representative banks and OECD representative banks in 2011-2015.

Based on the weight-limited DEA model, this paper calculates the bank’s efficiency and further compares the differences between China’s representative banks and OECD representative banks by using commercial banks’ transnational data.

By analyzing US representative banks’ data, the authors find that the excessive expansion of the scale of banks’ investment for the non-real economy shrinks after the bubble burst and would not improve the efficiency of banks immediately. The OECD representative banks rather prefer to extreme asset portfolio so that the potential risks gradually increase, while there is a diminishing effect on investments in non-real economies to improve bank efficiency. On the other hand, China’s representative banks have the signs of reducing investment in the real estate market, but the existence of the bubble in the market led to a lagged effect on the impact of adjustment of bank asset portfolio on efficiency.

This paper has practical significance for commercial banks to improve efficiency and reduce credit risks. This is conducive to the implementation of targeted supervision by the banking supervision department.

Based on the lesson that the financial crisis created by the real estate bubble burst in the USA in 2008 and the financial market active guidance of the developed economies, faced with the reality of Chinese real estate market bubble rising and the continuous improvement of Chinese financial market, this paper compares the differences between representative banks in China and OECD, and explores the causes by using the cross-country data of commercial banks.

By adjusting the weight of the input variables in the efficiency measurement, quantifying the risk is often overlooked by the changes in bank efficiency. This potential risk is caused by the bank’s investment preferences in the non-real economy represented by real estate and tradable financial assets.

This study aims to analyze the factors that influenced the stability of Islamic banks in Asia.

The panel data consisted of 16 Asian countries operating Islamic banks from 2010 to 2019. The data were analyzed through dynamic panel regression using Arellano–Bond generalized method of moments (GMM).

This study provides novel insights into the factors influencing the stability of Islamic banks in Asia. The findings suggest that past financial stability, liquidity risk, loan risk, inflation, gross domestic product, government effectiveness, rule of law and control of corruption are all significant contributors to Islamic bank stability. Notably, political stability, voice and accountability and regulatory quality did not show a significant association.

The current study’s focus was solely on Islamic bank stability in Asian countries, which leaves room for further exploration. Future research could benefit from expanding the scope to encompass all nations with active Islamic banking institutions. In addition, incorporating a broader range of macroeconomic variables, such as exchange rates, interest rates, profit-sharing equivalents and investment rates, could provide deeper insights into the factors influencing Islamic bank stability across diverse contexts.

This study has significant practical implications for policymakers, bank managers and regulatory authorities seeking to enhance the stability of Islamic banks in Asia. By implementing robust risk management frameworks, adopting prudent regulatory policies, and actively fostering economic growth, policymakers can create an environment conducive to the sustained development and prosperity of Islamic banking institutions. Notably, promoting good governance practices and instituting effective crisis prevention measures can further bolster the resilience of the Islamic banking sector, enabling it to play a more dynamic role in contributing to the overall development and welfare of Asian societies.

The findings of this study carry significant social implications, highlighting the need for governments in Asian countries to prioritize public policies that promote good governance and ethical practices within the banking industry. Such policies, coupled with efforts to attract foreign investments and foster a stable and transparent banking sector, have the potential to generate far-reaching positive effects on society. Through economic growth stimulated by a robust Islamic banking sector, Asian countries can create new employment opportunities, improve living standards and ultimately enhance the overall well-being of their citizens.

This study contributes to the ongoing discourse on Islamic banking stability by offering novel insights and expanding the empirical knowledge base in this field. The dual application of robust regression methodologies – namely, GMM dynamic panel data models – presents a unique analytical framework for investigating the complex interplay between diverse variables and Islamic bank stability. This methodological choice fosters deeper understanding of the dynamic relationships at play, advancing our understanding of how specific factors influence the sector's resilience and performance. In addition, the study uses rigorous empirical techniques and engages with the extant literature to provide fresh perspectives and nuanced interpretations of the findings, further solidifying its contribution to the field's originality and richness.

The purpose of this paper is to examine the effects of funding liquidity risk and liquidity risk on the bank risk-taking.

This study employs a system generalized method of moments (GMM) estimation technique and a sample of 57 banks operating in BRICS countries over the period from 2006 to 2015.

The results reveal that liquidity risk has a significant and negative effect on the bank risk-taking, indicating that a decrease in liquidity risk contributes to higher bank risk-taking. The study also reveals that funding liquidity risk has the substantial impact on bank risk-taking, suggesting lower funding liquidity risk results in higher bank risk-taking. These results are consistent with prior assumptions.

The implications of this study highlight the fact that liquidity risk is a risk factor which drives the potential bank default, of which banks tend to take more risks when higher funding liquidity exists.

This study offers a number of valuable implications for the policy makers as well as practitioners. The policy makers should take into account better liquidity risk management framework aimed at preventing banks from taking excessive risks. Bank executives must pay more attention on how banks could hold more liquid securities and cash. Less risk-taking reduces higher borrowing costs undermining earnings through imposing taxes on corporate.

This work uncovered that liquidity risk per se is an important and previously unidentified risk factor, specifically its effects on bank risk-taking and contributes to the view in support of holding more liquid securities than the past.

The main purpose of this study is to investigate the remodeling of risk management, risk-averse mechanism and the importance of Basel-III framework to cope with the current financial challenges in the regime of post global financial crises of 2008-2011 by evidences in the banking sectors of emerging economies of Bahrain, the UAE and Pakistan.

To ensure deep understanding in this cross-cultural study, two fold data collection techniques are used; one through distribution of questionnaires to relevant staff members and second through personal interviews of selected risk officials. Respondents are selected on the basis of minimum five years banking experience and relevant professional education of finance or risk management. Multistage sampling technique is used for data collection. To ensure the consistency from respondents, personal interviews were conducted with an interval of six months after receipt of questionnaires. Various statistical and econometric techniques were used to test the study hypotheses and to satisfy the study objectives.

Based on statistical analysis and personal surveys, research findings concluded that banking sectors of study-countries have deep concern with potential risk challenges and they are in continuous process to improve risk measurement framework in accordance with the latest regulatory obligations. All three types of banks have clear understanding of RM practices and strong relationship is observed between predictors and endogenous variables. Respondent banks of study-countries have deep attentiveness to manage all key risks and they recommend to transform existing regulatory framework including Basel-III reforms to develop a more comprehensive “one-size-fits-all” regulatory framework to cover loopholes of existing financial system.

This study is limited to the findings of remodeling of risk management to cope with the new financial challenges for the banking sector. Empirical investigation is conducted in emerging economies of the sub-continent and gulf and evidences are obtained from the UAE, Bahrain and Pakistan. Following this research model, future research can be extended to enlarge the sample size, by including other regional countries or a comparison between eastern and western countries to make it more useful to understand the risk management strategies, minimize banking default risks and to make this significant economic sector more strengthen.

Respondent countries of this study are fast growing and emerging economies of the sub-continent and gulf. Results of this cross-cultural study are likely to be beneficial for credit analysts, bankers and academic researchers. Findings are also beneficial for local and international business investors while they are taking prudent investment decisions in respective capital markets.

This is the first comparative study to empirically investigate the RM practices and risk-averse mechanism in banking sectors of Bahrain, the UAE and Pakistan. In perspective of study-countries, a critical analysis on risk-averse mechanism and Basel-III regulatory implications is demonstrated in this study.

This paper makes a novel attempt to estimate the potential impact of credit risk on foreign direct investment (FDI hereafter), thereby focusing on a completely unexplored area in the existing empirical literature.

To provide a comprehensive understanding of the relationship between credit risk and FDI inflows, the study incorporates all the eight-member economies of the South Asian Association of Regional Cooperation (SAARC hereafter) and analyzes a panel data set, over the period 2011 to 2019, extracted from the World Development Indicators, using the suitable econometric techniques for the efficient estimations of the specified models.

The results indicate a negative and statistically significant relationship between the credit risk of the banking sectors and FDI inflows. Similarly, market size and inflation rate appear to be the two other main factors behind the increasing FDI inflows in the SAARC member economies. Interestingly, the size of the market became irrelevant in attracting FDI inflows when the Indian economy is excluded from the sample due to its higher economic weight. On the other hand, FDI inflows are not dependent on the level of trade openness, with most of the specifications showing either an insignificant or negative coefficient of the variable.

The obtained results are unique and robust to alternative methodologies, and hence, the SAARC economies could consider them as the critical inputs in formulating the appropriate policies on FDI inflows.

The findings are unique and original. The authors have established a relationship between credit risk and FDI for the first time in the SAARC context.

The new Basel Accord (known as Basel II) attempts to introduce more risk-sensitive capital requirements. We propose a multiperiod deposit insurance pricing model that incorporates specific regulatory capital requirements and the possibility of capital forbearance and moral hazard. We estimate the cost of deposit insurance under alternative regulation regimes based on the building block approach of the 1988 Basel Accord (known as Basel I) and internal model-based (IMB) capital regulation. In contrast to the building block of Basel I, Basel II's IMB capital regulation links more closely the capital requirement to a bank's actual risk. We develop a multiperiod pricing model while incorporating the effects of capital forbearance and moral hazard. The fairly-priced premium rates are computed by assuming that a bank's asset value follows a GARCH process. In contrast to previous studies based on the building block capital standard, we find that forbearance and the potential moral hazard behavior will not increase the cost of deposit insurance in the scheme of Basel II's IMB capital regulation.

The purpose of this paper is to investigate the relationship between gender diversity and the risk profile of Italian banks during the period 2015–2019. This study examines whether the presence of female board directors or top executives has any significant effect on bank risk-taking.

To explore the influence of women on bank risk-taking, the authors analyzed a sample of 387 Italian banks and developed an econometric model applying unbalanced panel data with firm fixed effects and controls per year. Within a multivariate regression model, the authors considered five risk dimensions to verify the effect of gender diversity.

The findings suggest that female board directors and executives are considerably more risk averse and less overconfident than their male colleagues, thus confirming a negative causality between risk-taking and gender diversity. The results reveal that banks headed by women are less risky because they report higher capital adequacy and equity to assets ratios. As credit risk in female-led banks is no different from male-led ones, higher capital adequacy does not derive from lower asset quality because it is linked to the higher risk aversion of female directors and top managers.

From a theoretical standpoint, the results suggest that having women in executive positions entails different risk implications for Italian banks; from a managerial perspective, the results highlight conditions that may promote the role of women in the banking sector. The conclusions are of particular significance because they provide some support for the view that regulators should favor gender quotas in the board management of banks to reduce risk-taking behavior.

This paper offers an in-depth examination of the risk practices of banks and it attempts to bridge the gap in prior literature on the risk profile of the Italian banking industry given that few empirical studies have examined the determinants of risk-taking in this field, to date. The findings on the higher risk aversion of women directors advance the understanding of the determinants of risk-taking behavior in banks, suggesting that gender quotas in bank boards can contribute to reducing risk-taking behavior. This also unveils some policy implications for bank regulatory authorities.

The purpose of this paper is to study the optimal coverage limit in a model of deposit insurance with capital requirements and risk sensitive premia to prevent moral hazard.

The theoretical model has incorporated capital requirements, risk‐sensitive premium, and partial deposit insurance in a partial equilibrium model. The model discusses the interaction among risk‐taking banks, ex‐ante heterogeneous depositors, and a deposit insurer.

First, the paper shows that optimal coverage encourages depositors' monitoring and withdrawals. Partial deposit insurance improves social welfare. Second, risk‐sensitive premia and market discipline are essential to reduce bank risk taking behavior. Third, adjustment between level of coverage and the premium guarantees long term liquidity of the deposit insurance funds and makes banks better off. Fourth, numerical findings are consistent with the empirical evidence that shows differences in coverage between countries.

Timing and frequency of adjustments to coverage limits and the implementation of co‐insurance have been beyond the scope of this study but those implications are worth further investigation.

In the current crisis, banking regulations combined with poor management and supervision have been responsible for banks' improper leverages, lending and securitization. A bank failure could easily turn into a crisis when the financial institution is overly exposed to credit risks and when the government is least equipped to deal with those risks. Thus, the study of the partial deposit insurance is important in achieving stability in the banking sector.

This study aims to analyze the potential implications of economic freedom and competition for bank stability.

Using system generalized method of moments and data from 139 banks across 11 Sub-Saharan African (SSA) countries during the period 2006–2012, this study considers whether the degree of economic freedom affects the relationship between competition and bank stability.

The results show evidence of the competition-fragility hypothesis in SSA banking, but suggests that beyond a setting threshold, increases in market power may also be damaging to bank stability. Financial freedom has a negative effect on bank stability, suggesting that banks operating in environments with greater financial freedom generally tend to be less stable or more risky. The authors also find evidence of a conditional effect of economic freedom on the competition–stability relationship, implying that bank failure is more likely to occur in countries with greater economic freedom, but with low competition in the banking sector.

The results suggests to policy makers that a moderate level of competition and economic freedom may be the appropriate policy to ensure the stability of banks.

The study provides insight on the competition–bank stability relationship, by providing new empirical evidence on the effect of economic freedom, which has not been previously considered.

The financial sector's resilience is associated with greater prosperity and a better average income. Banks have evolved their business model and diversified their sources of income, and bank digitalization has become one of the prominent strategies. The purpose of this study is to examine how bank service expansion represented by revenue diversification activities and digital strategy will enhance bank stability in ASEAN countries from 2010 to 2021.

This study uses information from the Datastream database and banks’ annual reports to measure bank stability, diversification and market power, which also provide information for bank digital strategy. This study uses the two-step system generalized method of moments to investigate the effect of diversification and digitalization on bank stability in ASEAN.

The results of this study show that bank revenue diversification has no effect on bank stability, and the presence of the chief digital officer and digital disclosure improves banks’ stability. However, alliance strategy with financial technology companies does not significantly impact bank stability and might increase bank risk.

The findings of this study provide relevant policy implications: the regulation should support bank business to diversify the source of income; regulators and policymakers should regulate and enhance the Information and Communication Technology infrastructure; and banks should design their strategy comprehensively.

This study provides new evidence of the essential role of digital strategy in enhancing bank stability in ASEAN. In addition, this study also shows how banks diversify their business in a competitive environment.