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Article
Publication date: 1 January 2006

Edgardo Demaestri and Federico Guerrero

Aims to review the potential risks associated with the separation of banking regulation from the orbit of the central bank in Latin‐American and Caribbean countries (LAC).

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Abstract

Purpose

Aims to review the potential risks associated with the separation of banking regulation from the orbit of the central bank in Latin‐American and Caribbean countries (LAC).

Design/methodology/approach

Sets out information on the banking regulators in LAC and on the current degree of involvement of the central bank in banking regulation; the main monetary policy issues connected to the separation of banking regulation from the central bank; and the main banking regulation issues involved.

Findings

The separation of banking regulation from the central bank would not present any great danger to LAC currently. However, the need to conduct the move in accordance with best principles must be emphasized.

Originality/value

Given the fertile ground offered by the countries of LAC, this paper presents arguably the most comprehensive examination to date of this “hot potato”.

Details

Journal of Financial Regulation and Compliance, vol. 14 no. 1
Type: Research Article
ISSN: 1358-1988

Keywords

Open Access
Article
Publication date: 9 September 2022

Retselisitsoe I. Thamae and Nicholas M. Odhiambo

This paper aims to investigate the nonlinear effects of bank regulation stringency on bank lending in 23 sub-Saharan African (SSA) countries over the period 1997–2017.

Abstract

Purpose

This paper aims to investigate the nonlinear effects of bank regulation stringency on bank lending in 23 sub-Saharan African (SSA) countries over the period 1997–2017.

Design/methodology/approach

This study employs the dynamic panel threshold regression (PTR) model, which addresses endogeneity and heterogeneity problems within a nonlinear framework. It also uses indices of entry barriers, mixing of banking and commerce restrictions, activity restrictions and capital regulatory requirements from the updated databases of the World Bank's Bank Regulation and Supervision Surveys as measures of bank regulation.

Findings

The linearity test results support the existence of nonlinear effects in the relationship between bank lending and entry barriers or capital regulations in the selected SSA economies. The dynamic PTR estimation results reveal that bank lending responds positively when the stringency of entry barriers is below the threshold of 62.8%. However, once the stringency of entry barriers exceeds that threshold level, bank credit reacts negatively and significantly. By contrast, changes in capital regulation stringency do not affect bank lending, either below or above the obtained threshold value of 76.5%.

Practical implications

These results can help policymakers design bank regulatory measures that will promote the resilience and safety of the banking system but at the same time not bring unintended effects to bank lending.

Originality/value

To the best of the authors’ knowledge, this is the first study to examine the nonlinear effects of bank regulatory measures on bank lending using the dynamic PTR model and SSA context.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Book part
Publication date: 1 January 2005

James A. Wilcox

Deregulation and other factors permit and encourage financial institutions to become more integrated, both within their own (financial) industries, such as banking and…

Abstract

Deregulation and other factors permit and encourage financial institutions to become more integrated, both within their own (financial) industries, such as banking and insurance, and across these industries. Financial regulators have responded with like integration. As financial institutions increasingly compete with firms from other industries and areas, financial regulators similarly compete more across borders. The resulting competition in financial regulation enhances innovation, choice, and efficiency. The advent of home-run regulation, which in general allows financial institutions to adhere only to the financial regulations of their home area and is spreading across the US and Europe, may allow numerous regulatory regimes within a given market.

Details

Research in Finance
Type: Book
ISBN: 978-0-76231-277-1

Abstract

Details

The Banking Sector Under Financial Stability
Type: Book
ISBN: 978-1-78769-681-5

Article
Publication date: 15 October 2021

David Mathuva and Moses Nyangu

In this paper, the authors examine the association between the banking regulatory regime and the quality of bank earnings. We further investigate whether the banking

Abstract

Purpose

In this paper, the authors examine the association between the banking regulatory regime and the quality of bank earnings. We further investigate whether the banking agency regulatory characteristics moderate the association between banking regulation and earnings quality.

Design/methodology/approach

Using panel data spanning 29 years over the period 1991 to 2019, the authors model bank earnings quality as a function of scores for banking regulation for 170 banks in the East African region using both the feasible generalized least squares (FGLS) and generalized method of moments (GMM) estimation methods.

Findings

The results, which are robust for endogeneity among other checks, reveal a positive impact of bank regulatory mechanisms on the quality of bank earnings. The authors further establish differential impact of specific regulatory mechanisms, with some contributing positively toward earnings management while others contributing negatively toward earnings management. The differential impacts of banking regulation on earnings quality are also manifested in the country-level analyses.

Research limitations/implications

First, the study utilises a mix of bank-specific, country-specific as well as economy-specific variables in one dataset. Second, the authors utilise survey-based data using the World Bank's Bank Regulation and Supervision Surveys (BRSS) for the periods 1999 to 2019. The authors assume that the bank regulatory mechanisms in place pre-1999 are close to the mechanisms in place as per the 1999 BRSS. Given limitations in data availability, the authors are not able to control for banks engaging in multiple activities such as insurance, underwriting of securities, FinTechs, among others.

Practical implications

The results are useful in bridging the gap between theory and practice regarding the expected effect of strict banking regulations on the quality of earnings in Eastern African Banks. For the positive impact of banking regulation on bank earnings quality to be felt, the institutional, social and environmental specificities of the five selected countries need to be adequately developed and taken into consideration.

Originality/value

This study is perhaps the first to utilise a large dataset of commercial banks from countries in a developing region characterised by relatively lower enforcement and dynamism in the banking regulation. Further, in-depth studies on the association between banking regulation and earnings quality remain sparse.

Details

Journal of Accounting in Emerging Economies, vol. 12 no. 3
Type: Research Article
ISSN: 2042-1168

Keywords

Article
Publication date: 9 November 2021

Liem Nguyen, Son Tran and Tin Ho

This study is the first to investigate whether fintech credit influences bank performance, considering the moderating impact of bank regulations.

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Abstract

Purpose

This study is the first to investigate whether fintech credit influences bank performance, considering the moderating impact of bank regulations.

Design/methodology/approach

This study uses an aggregate dataset of 73 countries from 2013 to 2018 to examine the nexus between fintech credit, bank regulations and bank performance. For robustness tests, the authors introduce different proxies of fintech credit, perform sub-sample analysis and substitute control variables, as well as conduct their empirical strategy to tackle potential endogeneity issue.

Findings

The authors document some significant findings. First, the authors’ evidence implies that fintech credit tends to reduce bank profitability, while improving bank risk-related performance. This suggests that as fintech grows, it competes with banks and takes some share of profits, but it also benefits banks in terms of stability. Second, stricter regulations contribute positively to bank stability. Third, the authors argue that the impact of fintech credit on bank performance may depend on the degree of banking regulation, and find that fintech credit would impose a more positive influence on bank stability as more stringent banking regulation is present.

Originality/value

This study is the first to investigate whether fintech credit influences bank performance, considering the moderating impact of bank regulations. The findings imply that fintech credit tends to be more beneficial when bank regulations become stricter. Therefore, they bring relevant implications to the regulators, as well as bank and fintech managers with regard to the potential cooperation.

Details

Asia-Pacific Journal of Business Administration, vol. 14 no. 4
Type: Research Article
ISSN: 1757-4323

Keywords

Article
Publication date: 3 August 2021

Antony Rahim Atellu, Peter Muriu and Odhiambo Sule

This paper aims to establish the effect of bank regulations on financial stability in Kenya. Specifically, the study seeks to uncover the effect of micro and macro…

Abstract

Purpose

This paper aims to establish the effect of bank regulations on financial stability in Kenya. Specifically, the study seeks to uncover the effect of micro and macro prudential regulations on financial stability and their trade-offs or complementarities.

Design/methodology/approach

Using annual time series data over the period 1990–2017, the study uses structural equation model (SEM) estimation technique. This solves the problem of approximating measurement errors, using both latent constructs and indicator constructs.

Findings

Study findings reveal that macro and micro prudential regulations are significant drivers of financial stability. Further, prudential regulations are more effective when they complement each other.

Research limitations/implications

This study centers on how bank regulations affect financial stability. Future research could be carried out on the effect of Non-Bank Financial Institutions regulations on financial system stability.

Practical implications

Complementing macro and micro prudential regulation is more effective and efficient in ensuring stability of the financial system other than letting the two policy objectives operate independently.

Social implications

Regulatory authorities should introduce prudential regulations that would encourage innovations in the banking sector. This ensures easy deposit mobilization that enhances financial inclusion. Prudential regulations that ensure financial stability will be effective when low income earners are included in the financial system.

Originality/value

To the best of the authors’ knowledge, this study is the first to investigate the role of banking regulations on financial stability. This study is also pioneering in the use of SEM estimation technique, in examining how prudential regulations affect financial stability. Previous cross-country studies have focused on macro prudential regulations ignoring the importance of micro prudential regulations.

Details

Journal of Financial Regulation and Compliance, vol. 29 no. 5
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 19 September 2019

Ali Jamali

The FDIC Improvement Act of 1991 sets out five categories of capital and mandates corrective action for banks. Each bank based on its capital amount fall in the certain…

Abstract

Purpose

The FDIC Improvement Act of 1991 sets out five categories of capital and mandates corrective action for banks. Each bank based on its capital amount fall in the certain categories or states. The purpose of this paper is to consider the effect of banking regulations and supervisory practices on capital state transition.

Design/methodology/approach

First, the authors investigate how much the practices influence banks' capital adequacy using a dynamic panel data method, the generalized method of moments. Then, to scrutinize the results of the first phase, the authors estimate the effect of practices on some characteristics of capital state transition such as transition intensity, transition probability and state sojourn time using multi-state models for panel data in 107 developing countries over the period 2000 to 2012.

Findings

The dynamic regression results show that capital guidelines, supervisory power and supervisory structure can have significantly positive effects on the capital adequacy state. Moreover, the multi-state Markov panel data model estimation results show that the significantly positive-effect practices can change the capital state transition intensity considerably; for example, they can transmit the critical-under-capitalized (the lowest) capital state of banks directly to a well or the adequate-capitalized (the highest) capital state without passing through middle states (under-capitalized and significantly-undercapitalized). Moreover, the results present some new evidence on transition probability and state sojourn time.

Originality/value

The main contribution of this paper, unlike the existing literature, is to consider the power of banking regulations and supervisory practices to improve the capital state using a multi-state Markov panel data model.

Details

Journal of Financial Regulation and Compliance, vol. 28 no. 1
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 16 July 2018

Alexander Bleck

This paper aims to study the design of bank capital regulation and points out a conceptual downside of risk-sensitive regulation. The author argues that when a bank is…

Abstract

Purpose

This paper aims to study the design of bank capital regulation and points out a conceptual downside of risk-sensitive regulation. The author argues that when a bank is better informed about its risk than the regulator, designing regulation is subject to the Lucas critique. The second-best regulation could be risk-insensitive, which provides an explanation for the leverage ratio as a backstop to risk-based capital requirements. This paper offers empirical predictions and implications for policy.

Design/methodology/approach

The argument in the paper is based on analytical results from mechanism design.

Findings

Optimal bank regulation could be risk-insensitive, as is observed in practice in the form of the leverage ratio rule.

Originality/value

Counter to conventional wisdom, the paper argues and provides a new explanation for why bank regulation should not be sensitive to the risk of the bank. The paper then offers empirical predictions and implications for policy.

Article
Publication date: 1 April 1998

Richard Dale and Simon Wolfe

Several recent developments (notably, the breakdown of traditional distinctions between different types of financial activity, the globalisation of financial markets and…

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Abstract

Several recent developments (notably, the breakdown of traditional distinctions between different types of financial activity, the globalisation of financial markets and increasing emphasis on systemic stability as a regulatory objective) have prompted policy‐makers to search for an ‘optimum’ regulatory structure that is adapted to the new market environment. Further impetus has been given to this debate by the radical overhaul of regulatory structures, along quite different lines in Australia, the UK and Japan, and the ongoing deliberations within the US Congress over structured financial reform. This paper examines alternative ways of organising the regulatory function in the context of the new financial market environment. The first section reviews the objectives, targets and techniques of regulation. The second section describes the new market environment and the restructuring of the financial services industry. The third section assesses the implications of this new environment for the structure of regulation. The fourth section addresses the international dimension. The final section provides a summary and conclusion. The paper is based on a presentation made at the World Bank Conference, El Salvador, June 1998.

Details

Journal of Financial Regulation and Compliance, vol. 6 no. 4
Type: Research Article
ISSN: 1358-1988

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