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Article
Publication date: 12 June 2019

Thanh Ngo and Tu Le

The purpose of this paper is to empirically investigate the causal relationship between banking efficiency and capital market development in 86 countries between 2006 and 2011.

Abstract

Purpose

The purpose of this paper is to empirically investigate the causal relationship between banking efficiency and capital market development in 86 countries between 2006 and 2011.

Design/methodology/approach

The authors follow the two-stage framework: data envelopment analysis (DEA) with the use of financial ratios is used to arrive at efficiency scores of the banks in the first stage. Thereafter, those efficiency scores will be linked with the development level of the capital markets of the corresponding country in the second stage using the generalised method of moments in a simultaneous equations model.

Findings

The authors found that banking systems around the world were still inefficient, suggesting that it would take time for the global banking system to recover after the global financial crisis 2007/2008. More importantly, the findings demonstrated that the larger the capital market is, the less efficient its banking system would be. In contrast, banking efficiency can positively influence the development of the capital market.

Research limitations/implications

The data are unbalanced and limited to 86 countries; the study did not analyse the productivity change over time of those banking systems; and it would be useful to test the first-stage DEA with different sets of variables as well as different assumptions.

Practical implications

The paper suggests that for any economy around the world, an improvement in banking performance and efficiency rather than capital market development should be a priority, alongside with monitoring inflation.

Originality/value

The paper provides an unbiased analysis of the causal relationship between the banking sector and the capital market.

Details

International Journal of Managerial Finance, vol. 15 no. 4
Type: Research Article
ISSN: 1743-9132

Keywords

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Book part
Publication date: 19 July 2005

Warren J. Samuels

That Melchior Palyi taught a course at the University of Chicago on the European banking system is unsurprising, given his background provided in the biographical sketch…

Abstract

That Melchior Palyi taught a course at the University of Chicago on the European banking system is unsurprising, given his background provided in the biographical sketch presented above.

Details

Documents from F. Taylor Ostrander
Type: Book
ISBN: 978-0-76231-165-1

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Article
Publication date: 10 July 2017

Colleen Baker, Christine Cummings and Julapa Jagtiani

Basel III and the capital stress testing introduced new requirements and new definitions while retaining the structure of the pre-2010 requirements. The total number of…

Abstract

Purpose

Basel III and the capital stress testing introduced new requirements and new definitions while retaining the structure of the pre-2010 requirements. The total number of requirements increased, making it difficult to determine which and how many constraints are binding. The purpose of this paper is to discuss the new financial regulations in the post-financial crisis period, focusing on the capital and liquidity regulations.

Design/methodology/approach

The authors explore the impact of financial regulations using various data sources – financial and accounting data from Y-9C Reports. Market data such as daily bond trading from TRACE through the Wharton Data Research Services and Treasury yield from the Bloomberg. The authors use regression analysis to examine the roles of capital adequacy and liquidity regulations.

Findings

The authors’ analysis in this paper suggest that Basel III, CET1 and Level 1 HQLAs requirements post-financial crisis have reshaped the balance sheets of large financial institutions, with some differential impacts on traditional versus capital markets banks. These changes appear to respond to the binding constraints (CET1 being a preponderance of required regulatory capital, Level 1 HQLAs a majority of required HQLAs and the expense of both) created by these new requirements, which also appear to have constrained asset growth at such institutions. Consistent with the authors’ view, their results suggest that the new requirements are less constraining for large traditional banks (such institutions show a rapid increase in CET1 capital to steady-state levels by 2012 and strong retail deposit rebuilding resulting in a relatively low required HQLA) and much more so, particularly the liquidity requirement, for the capital markets banks (such institutions show continuous building of CET1 capital over the post-crisis observation period, declines in the share of trading assets and increases in the share of HQLAs combined with efforts to increase retail deposits). Credit risk spreads rose dramatically during the financial crisis of 2008-2009. Although decreased, they remain higher and with greater dispersion (for both groups of banks) than pre-crisis. Preliminary regression analysis suggests that the market responds to changes in measured liquidity, rather than the regulatory capital ratios, when pricing bank risk (as reflected on bond spreads).

Research limitations/implications

The estimation is based on historical relationship in the data. We must be cautious in extrapolating the results in a different environment.

Practical implications

There appears to be an arbitrage between HQLA and retail deposits. Capital markets banks and traditional banks follow different business models as evident in the analysis in this paper.

Social implications

Market pricing suggests that the liquidity measures are more transparent and easier to understand. Capital ratios are not as easy to interpret.

Originality/value

Original research. To the authors’ knowledge, there is no paper that examines impacts of capital and liquidity regulations after the crisis at capital markets banks vs traditional banks – using both accounting data and market data.

Details

Journal of Financial Regulation and Compliance, vol. 25 no. 3
Type: Research Article
ISSN: 1358-1988

Keywords

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Book part
Publication date: 1 January 2004

Walter E. Grinder and John Hagel

Of all the various interventions into the market economy, which have been invented and implemented by man and state, those that historically have caused the gravest…

Abstract

Of all the various interventions into the market economy, which have been invented and implemented by man and state, those that historically have caused the gravest consequences in the advanced industrialized economies surely are the inflationist policies, which lead inexorably to the business cycle in all of its various aspects and manifestations. In this paper, we shall attempt to trace through a number of socio-economic consequences and implications of the business cycle. We are convinced that ultimately the business cycle has political implications, which are just as far reaching and grave as its numerous economic consequences.

Details

The Dynamics of Intervention: Regulation and Redistribution in the Mixed Economy
Type: Book
ISBN: 978-0-76231-053-1

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Article
Publication date: 19 May 2014

Craig Anthony Zabala and Jeremy M. Josse

The purpose of this paper is to analyze a particular segment of the US “shadow bankingmarket and its revival since the recent credit crisis, namely, lending to the…

Abstract

Purpose

The purpose of this paper is to analyze a particular segment of the US “shadow bankingmarket and its revival since the recent credit crisis, namely, lending to the private Middle Market, defined as financings of $5-100 million to non-public, unrated operating entities or pools of assets with not more than $50 million in earnings before interest, taxes, depreciation and amortization.

Design/methodology/approach

The analysis includes a review survey of a segment of capital markets and primary evidence from direct participation in two examples of actual private, non-bank lending between 2011 and 2012 executed by a Middle Market US investment bank.

Findings

While there have been considerable challenges, historically, in providing credit for small-and mid-sized businesses in the USA, private Middle Market capital is (post the recent credit crisis) finding opportunities, notwithstanding, constraints imposed by market and other forces, including systemic crises, cyclical forces and changes in regulatory regimes.

Research limitations/implications

Any generalization is limited due to the absence of disaggregated survey data for the US capital markets and the limited examples examined.

Practical implications

The capital markets segment and non-bank financial institutions examined in this paper are developing as an alternative source of credit/lending from commercial banks for mid-sized companies.

Social implications

The mid-sized firms financed by the shadow credit market are a significant source of job creation in the US economy making non-bank credit a lifeline to job growth in the financial crisis.

Originality/value

Direct participation is unique to the firms studied. Value is in developing a general framework to analyze different segments of the capital market.

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Article
Publication date: 1 May 2001

M. Shahid Ebrahim and Tan Kai Joo

This paper studies the current realities of the Islamic banking system of Brunei Darussalam from the perspective of the theories of modern financial intermediation and

Abstract

This paper studies the current realities of the Islamic banking system of Brunei Darussalam from the perspective of the theories of modern financial intermediation and Islamic financial contracting. The limited information on the banking system of Brunei Darussalam reveals that the first phase of the Islamic banking experimentation has been successful, as Islamic banks command roughly 11.5 per cent of the market share. The financial services industry, however, remains extremely competitive and Islamic banks face formidable challenges from conventional banks. Islamic banks can proliferate if they: advance towards the second phase by gradually consolidating retail banking with investment banking; establish vital links with local and foreign institutions; and use ijtihad in modern financial engineering to optimally design loans while simultaneously reducing their risk exposure. An efficient Islamic financial system can allocate limited capital resources to the most profitable ventures and assist in wealth creation. This can foster the growth not only of Negara Brunei Darussalam but also of the regional economies, particularly at this crucial juncture when Asian economies are reeling from the current financial crisis.

Details

International Journal of Social Economics, vol. 28 no. 4
Type: Research Article
ISSN: 0306-8293

Keywords

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Article
Publication date: 1 June 2002

Kooros Maskooki

Mexico’s 1994 peso devaluation and ensuing crisis surprised the markets and caught international markets and many policy makers off‐guard. Some of the contributing factors…

Abstract

Mexico’s 1994 peso devaluation and ensuing crisis surprised the markets and caught international markets and many policy makers off‐guard. Some of the contributing factors were due to structural deficiencies and institutional rigidities, while others dealt with public policy issues. In addition, Mexico’s membership to the North American Free Trade Agreement (NAFTA), and ensuing rapid trade liberalization and deregulation of capital market and banking, were paramount to the peso crisis. Financial deregulation in Mexico, as in Korea and other crisis countries of Asia, took place before adequate, prudential regulation and supervision were in place. The result was excessive build‐up of bank credits driven by moral hazard. This paper deals with various factors leading to the peso crisis and presents the logical sequence of the unfolding of the events by analyzing the structural and institutional factors. Also, major developments in the post‐crisis period are discussed.

Details

European Business Review, vol. 14 no. 3
Type: Research Article
ISSN: 0955-534X

Keywords

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Article
Publication date: 16 March 2012

Saptarshi Ghosh and Swetketu Patnaik

The Independent Banking Commission (Vickers) Report is not only one of the most significant developments in the banking regulatory and supervisory context in the UK in…

Abstract

Purpose

The Independent Banking Commission (Vickers) Report is not only one of the most significant developments in the banking regulatory and supervisory context in the UK in recent times but is also one that would considerably impact banking and capital markets functions and trends in this decade. The purposes of this paper are two‐fold: to analyse the interim Vickers Report within the larger paradigm of the prudential banking regulatory approach in the UK, particularly in the context of the debate of bailing out banks that are too‐big‐to‐fail; and to critically examine the recommendation of the Report in the context of the failure of Northern Rock in 2007. The central focus of the paper is to analyse the probable impact and shortcomings of the key recommendation of the Vickers Report, i.e. requirement to hold an additional capital buffer in order to separately ring‐fence retail functions and retail deposits of universal banks and financial institutions operating in the UK.

Design/methodology/approach

The method used is a combination of legal examination and case‐study based analysis. This paper sees the failure of Northern Rock as essentially a consequence of supervisory lapses by the FSA and raises relevant critical questions as to the efficacy of the recommendation of the Vickers Report in the context of such supervisory lapses and failures. While relying primarily on official publications in the public domain, journal articles, academic writings, and, newspaper articles, this paper explores the related regulatory and financial implications of the Vickers Report recommendation in the backdrop of the banking crisis in the UK.

Findings

The paper concludes that the key recommendation of the Vickers Report, to ring‐fence retail functions universal banks operating in the UK, goes only mid‐way in securing the twin objectives of stability and safety that the Report has set out to achieve.

Research limitations/implications

The present Report is an interim one and the final version of the Report is expected in September. Further, various oversight reports and recommendations by the FSA and other bodies are expected as a follow‐up to the final Report. The key recommendation of the requirement for universal banks operating in the UK to hold additional capital for ring‐fencing their retail functions and deposits is not expected to undergo any substantial modification or revision in the final Report.

Originality/value

This paper is of immense significance to bankers, supervisors, lawyers, auditors, consultants, researchers, jurists, and, those engaged in or with various issues and sectors in financial and banking regulation.

Details

International Journal of Law and Management, vol. 54 no. 2
Type: Research Article
ISSN: 1754-243X

Keywords

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Article
Publication date: 28 October 2014

Tess DeLean and Joseph P. Joyce

This paper aims to investigate whether stock markets can reduce the output costs of banking crises. The work is motivated by Alan Greenspan’s claim that capital markets

Abstract

Purpose

This paper aims to investigate whether stock markets can reduce the output costs of banking crises. The work is motivated by Alan Greenspan’s claim that capital markets serve as a financial “spare tire” in the event of a banking crisis.

Design/methodology/approach

We test the impact of stock market capitalization, liquidity and turnover on the output losses of 76 banking crises in 66 countries over the period of 1975-2008.

Findings

Our results indicate that stock markets can mitigate the effect of banking crises on economic activity. There is also some evidence that foreign equity holdings lower output costs.

Practical implications

These results suggest that the development of equity markets will contribute to reducing the costs of banking crises. Such development, however, should be accompanied by adequate supervisory and regulatory oversight.

Originality/value

Our analysis is the first direct empirical investigation of the impact of stock markets on the output costs of banking crises. This paper demonstrates that equity markets can lessen the severity of such crises.

Details

Journal of Financial Economic Policy, vol. 6 no. 4
Type: Research Article
ISSN: 1757-6385

Keywords

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Book part
Publication date: 16 February 2006

Michael Skully and Kym Brown

Romania was a centrally planned economy until 1990. Over 1950 to 1975 large-scale government investments were made into heavy industry and hence productivity increased…

Abstract

Romania was a centrally planned economy until 1990. Over 1950 to 1975 large-scale government investments were made into heavy industry and hence productivity increased. Performance was measured against required production quotas rather than quality products that could be exported (Bacon, 2004). Compared to most other Central and Eastern European countries, Romania had little prior experimentation with market practices, so when the change occurred it was even more significant (Bacon, 2004). Romanians initially enjoyed their new economic freedoms and imported consumables previously not permitted. Inflation increased and workers sought higher wages, with consequential negative effects on output (Daianu, 2004). The government also expended large amounts, particularly foreign exchange reserves, prior to elections. Meanwhile, supranationals, such as the International Finance Corporation (IFC), World Bank, International Monetary Fund (IMF) and European Bank for Reconstruction and Development (EBRD), all funded Romania's burgeoning market economy. In 1993, a pyramid-type scheme offering huge returns for money invested for 3 years blossomed and became so large it rivalled gross domestic product (GDP) at the time. Hence the 1990s was a period of instability despite efforts to transform the economy to market practices.

Details

Emerging European Financial Markets: Independence and Integration Post-Enlargement
Type: Book
ISBN: 978-0-76231-264-1

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