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Financial inclusion can be proxied by banking status. The purpose of this study is to investigate the potential effects of financial capability on the financial fragility of US adults with various banking statuses during the COVID-19 pandemic.

This study utilized the 2021 National Financial Capability Study (NFCS) dataset to investigate the relationship between financial capability and financial fragility among consumers with different banking statuses. The analysis controlled for employment shocks, health shocks and other consumer characteristics. Banking statuses included fully banked, under-banked (utilizing both banking and alternative financial services) and unbanked individuals. Logistic regression analyses were conducted on both the entire sample and subsamples based on banking statuses.

The results showed that financial capability was negatively associated with financial fragility. The magnitude of the potential negative effect of financial capability was the greatest among the fully banked group, followed by the underbanked and unbanked groups. Respondents who were underbanked or unbanked were more likely to experience financial fragility than those who were fully banked. Additionally, respondents who were laid off or furloughed during the pandemic were more likely to experience financial fragility than those without employment shocks. The effect size of financial capability factors was greater than that of COVID-19 shock factors. These results suggest that higher levels of both financial capability and financial inclusion may be effective in reducing the risk of financial fragility.

This study represents one of the first attempts to examine the potential effects of financial capability on financial fragility among consumers with various banking statuses during the COVID-19 pandemic. Furthermore, this study offers new evidence to determine whether COVID-19 shocks, as measured by health and employment status, are associated with financial fragility. Additionally, the effect size of financial capability factors is greater than that of COVID-19 shock factors. The results from the 2021 NFCS dataset provide valuable insights for banking professionals and public policymakers on how to enhance consumer financial wellbeing.

Purpose – This chapter compares the stability of the U.S. Dual Banking system's two bank groups, national and state banks, in light of the current financial crisis. The goal of the chapter is to answer three distinct questions: first, is there a difference in the (balance sheet) fragility between the two groups and, second, to what extent has the balance sheet fragility of both groups changed after the escalation of the financial crisis beginning in August 2007? Building on that, the third question asks to whether or not the respective regulatory agencies of both bank groups are responsible for these changes in balance sheet fragility in light of the financial crisis.

Methodology – To answer these questions the chapter uses U.S. Call Report data containing full quarterly balance sheets and P&Ls of all U.S. commercial banks over the period 2005–2008. Anecdotal evidence as well as univariate and multivariate difference-in-difference methodology focusing on the immediate pre-crisis period Q1/2005–Q3/2007 and the crisis period Q3/2007–Q4/2008 are applied.

Results – Highly significant and robust results show that, ceteris paribus, national banks reduced their potential balance sheet fragility after the escalation of the crisis in August 2007 by reducing lending and liquidity creation stronger than state banks. Anecdotal evidence supports the empirical findings. Although both FDIC and OCC did not anticipate the adverse effects of the crisis, the OCC publicly showed an earlier reaction to liquidity-related problems than the FDIC.

Originality – The chapter is the first of its kind to analyze bank fragility around the escalation of the financial crisis and the role of the regulatory agencies. The chapter holds especially interesting policy implications in the light of the current discussion about the future regulation of the banking markets.

This study investigates how bank competition affects financial stability and whether government intervention contributes to shaping this relationship in North African countries.

A review of the literature on the subject was conducted, combined with an empirical analysis that used a two-step system generalized method of moments (GMM) and a sample of 45 banks operating in North African countries over the period 2005–2019.

The findings reveal a quadratic relationship between competition and banking stability in North African countries. Competition–stability view and competition–fragility view could be applied at the same time for North African banks. Additionally, in this context, results highlight a negative impact of government intervention on financial stability in a competitive financial sector. North African banks operating in a high government intervention quality environment tend to engage in high-risk investments. Robustness checks with alternative measures of competition and banking stability also show consistent results.

To the authors’ knowledge, this is the first time that the North African context has been explored to determine the role of the quality of government intervention in the relationship between competition and banking system fragility. This paper seeks to cover the shadow field in existing literature through further new information. Thus, it contributes to the emerging market banking literature by showing that both high and low levels of competition can improve financial stability in North African countries. Moreover, it expands its contribution by displaying the moderator effect of intervention quality on the bank competition–stability relationship.

This study aims to investigate the interactions among macroeconomic variable shocks, banking fragility and home financing provided by conventional and Islamic banks in Malaysia. Identifying the causes of financial instability and the effects of macroeconomic shocks can help to foil the onset of future financial turbulence.

The autoregressive distributed lag bound-testing cointegration approach, impulse response functions (IRFs) and forecast error variance decomposition are used in this study to unravel the long-run and short-run dynamics among the selected macroeconomic variables and amount of home financing offered by both conventional and Islamic banks. In addition, the study uses Granger causality tests to investigate the short-run causalities among the selected variables to further understand the impact of one macroeconomic shock to Islamic and conventional home financing.

This study provides evidence that macroeconomic shocks have different long-run and short-run effects on amount of home financing offered by conventional and Islamic banks. Both in the long run and short run, home financing provided by Islamic banks is more linked to real sector economy and thus is more stable as compared to home financing provided by conventional banks. The Granger causality test reveals that only gross domestic product (GDP), Kuala Lumpur Syariah Index (KLSI)/Kuala Lumpur Composite Index (KLCI) and house price index (HPI) are found to have a statistically significant causal relationship with home financing offered by both conventional and Islamic banks. Unlike the case of Islamic banks, conventional home financing is found to have a unidirectional causality with interest rates.

This study has focused on analyzing the macroeconomic shocks on home financing. However, this study does not assess the impact of financial deregulation and enhanced information technology on amount of financing offered by both conventional and Islamic banks. In addition, it is not within the ambit of this present study to examine the effects of agency costs and information asymmetry.

The analysis of cointegration and IRFs exhibits that in the long run and short run, home financing provided by Islamic banks are more linked to real sector economy like GDP and House Prices (HPI) and therefore more resilient to economic vulnerabilities as compared to home financing provided by conventional banks. However, in the long run, both conventional and Islamic banks are more susceptible to fluctuations in interest rates. The results of the study suggest that monetary policy ramifications to improve banking fragility should focus on stabilizing interest rates or finding an alternative that is free from interest.

Because interest plays a significant role in pricing of home loans, the potential of an alternative such as rental rate is therefore timely and worth the effort to investigate further. Therefore, Islamic banks can explore the possibility of pricing home financing based on rental rate as proposed in this study.

This paper examines the unresolved issues in Islamic home financing where Islamic banks still benchmark their products especially home financing, to interest rates in dual banking system such as in the case of Malaysia. To the best of the authors’ knowledge, studies conducted in this area are meager and therefore is imperative to be examined.

The purpose of this paper is to examine the impact of bank regulation and supervision on bank development, efficiency and fragility over the period of 1999-2011.

The authors’ approach is based on a multivariate difference-in-difference model which controls for potential endogeneity of the explanatory variables and unobservable country-specific effect. The paper investigates the changes of bank outcomes and a country’s regulation and supervisory practices, in terms of capital regulation, supervisory power, private monitoring, entry into banking requirements, overall restrictions on bank activities and government ownership of banks in a sample of 53 countries with a total of 482 observations.

Empirical results indicate that greater capital regulatory requirements reduce bank fragility, as measured by lower levels of non-performing loans but reduce bank efficiency, as measured by higher levels of net interest margin; supervisory practices that strengthen private sector monitoring of banks improve bank development, as measured by bank private credit as a share of gross domestic product; lower levels of non-performing loans are associated with greater enter-into-banking requirements and less restrictiveness on bank activities; and greater government ownership of banks is associated with both higher levels of net interest margin and higher levels of non-performing loans. Overall, the findings support Basel II’s first and third pillars: capital requirements and private monitoring.

This cross-country analysis provides evidence on which specific regulatory and supervisory practices work best in light of what was learned from the recent financial crisis.

Low cost financing in establishing economical development is very important. At this point, financial intermediaries provide great contributions to economic development by eliminating asymetrical information problem between lender and borrower. It is possible to see capital market in anglo‐saxon countries and banking system in Europe and Japan mostly from historical dimension. However, long term financing is done through capital market in most developed countries at present. It is a common characteristic in countries such as Turkey, Chile and Mexico whose economies are financed by banking system. Singh and Weisse (1998), suggests that it is because of late industrialisation 1. Developing countries are generally those where there is less capital. Therefore attracting both internal and external savings into the banking system (for these countries) is very important from economical development point. At this point, powerful banks are preferred by the investors. Because the possibilty of failure is low (for these banks) 2. The most important factor that effects banks risk structure is public’s role. Because public can effect banks risk structure both at macro and micro level. Public’s influence on bank’s risk structure at macro economic level is due to general economical structure. If the general economic structure has high volatility and is away from consistency, this situation will increase the risk for banking sector. On the other hand, fiscal dominance is one of the main problems especially in developing countries. Fiscal dominance caused by lack of enough public revenue affects banking sector negatively. Thus, a goverment which can not prepare the macro economic environment where banks can function at high productivity will increase banks’ risks. In addition, banks require strict regulations and controlling as its structure is open to fraud. That these regulations are ignored or not prepared will lead to risk accumulation in the sector. It becomes a social responsibility of the state to take necessary cautions as these kinds of issues change a large cost on the society. Within this framework, the aim of our study is to examine public’s role on fragilities in banking sector. These examinations will be conducted for Turkey which experienced a collapse in banking sector in the recent period. In the first and second part of our study, public’s influence on the sector at macro and micro level will be examined. Experiences gained through Turkey example will be presented in the conclusion.

The purpose of this research is to investigate the effect of a speculative attack on the Turkish Lira in the North Cyprus banking sector during the period 1984‐2002.

A mutivariate logit model is the empirical methodology employed in this analysis that allows us to identify the determinants of the probability of bank failure. In the model, the existence of contagious currency crises is constructed as an index of exchange market pressure, which is a weighted average of changes in interest rates, international reserves and the nominal exchange rate.

The empirical result reveals that the a speculative attack on the Turkish Lira in 1994 and 2001 put stress on banks operating in North Cyprus and led to banking sector distress. The findings also suggest that bank‐specific weaknesses, high interest rates, high credit, low trade and the fixed exchange rate policy significantly increased the bank fragility.

For further research this paper may better distinguish contagion if it uses economic and financial ties from Turkey that are practically susceptible to bank failure in North Cyprus.

This paper presents a practical application of a currency crisis model in the North Cyprus banking sector. In addition to the risk of currency crises, risk under fixed rate regimes, interest rate risk, trade risks and credit risk are also used to encourage correct risk management behaviour in the North Cyprus banking sector.

This analysis would appear to be the first systematic evidence that investigates the effect of a speculative pressure on Turkish Lira in the North Cyprus banking sector.

This study analyzes the impact of changes in bank capital on liquidity creation. More specifically, it tests “financial fragility – crowding out” and “risk absorption” hypotheses for Indian banks.

It uses the data of 136 listed and unlisted banks, ranging from the year 2000 to 2014. The analysis is based on panel data techniques.

There is negative relationship between narrow measure of bank liquidity creation and capital. Therefore, in the case of India, “financial fragility – crowding out” hypothesis holds for “cat nonfat” measure of liquidity creation. However, there is no relationship between “cat fat” measure of liquidity creation and capital, except for listed banks, and the banks in the pre-crisis period. In these two cases, “risk absorption” hypothesis holds. Furthermore, none of the hypotheses holds in the post-crisis period.

The higher capital requirements posed by the Basel III will result in lower on-balance-sheet liquidity creation, which may result in lower profitability for the banks. However, increase in capital does not affect off-balance-sheet liquidity creation, rather enhances it in case of listed banks. So, the managers may use risky off-balance-sheet liquidity creation to improve profitability. Therefore, the regulators must be vigilant to the off-balance-sheet activities of banks to avoid banking turmoil.

To the best of authors’ knowledge, this is the first study to explore which hypothesis regarding the relationship between bank capital and liquidity creation holds for Indian banks. It contributes to the existing literature by providing the empirical evidence that “financial fragility – crowding out” hypothesis holds for on-balance-sheet liquidity creation and “risk absorption” hypothesis holds for listed banks. It also points to the new direction that neither of the hypotheses holds in the post-crisis period in India.

Under the traditional franchise value paradigm, competition in banking markets is considered to be risk enhancing because of its tendency to raise interest rates on deposits. Taking a contrarian view, Boyd and De Nicolo (2005) have argued that competition in the loan market can lead to lower interest rates and hence reduce bank risk-taking. Following these contradictory theoretical results, the empirical evidence on the relationship between risk and competition in banking has also been mixed. This paper analyses the competition–stability relationship for the Indian banking sector for the period 1999-2000 to 2012-2013.

Banking competition is measured using structural measures of concentration, namely, five-bank concentration ratios and the Herfindahl-Hirschman Index as well as a non-structural measure of competition – the Panzar-Rosse H-Statistic. Panel regression methods are used to estimate the relationships.

Our results show that while concentration leads to lower levels of default, market and asset risks, it exacerbates the levels of capital and liquidity risks.

These results have interesting implications for banking sector policy in emerging economies. For instance, any strategy on entry of new banks has to be carefully coordinated with supervisory efforts and macro-prudential policy to derive the benefits of greater competition in the banking industry.

This is the first paper that analyses the competition – stability relationship using a large number of alternative measures for the banking sector, an emerging economy.

The recurrence of banking crises throughout the 1980s and 1990s, and in the more recent 2008‐09 global financial crisis, has led to an expanding empirical literature on crisis explanation and prediction. The purpose of this paper is to provide an analytical review of proxies for and important determinants of banking crises‐credit growth, financial liberalization, bank regulation and supervision.

The study surveys the banking crisis literature by comparing proxies for and measures of banking crises and policy‐related variables in the literature. Advantages and disadvantages of different proxies are discussed.

Disagreements about determinants of banking crises are in part explained by the difference in the chosen proxies used in empirical models. The usefulness of different proxies depends partly on constraints in terms of time and country coverage but also on what particular policy question is asked.

The study offers a comprehensive analysis of measurements of banking crises, credit growth, financial liberalization and banking regulations and concludes with an assessment of existing proxies and databases. Since, the review points to the choice of proxies that best fit specific research objectives, it should serve as a reference point for empirical researchers in the banking crisis area.