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The purpose of this paper is to describe a theoretical model for banking regulation in relation to Basel accords implementation. As a risk manager practitioner at a financial institution and in-charge of Basel implementation in a Basel accords environment of banking regulation, the author has been intrigued by the theoretical basis of the design of Basel accords. The objective was to investigate a theoretical model in the literature according to which the accords were designed. In case of deficiency in the literature of this model, the author seeks to provide a juxtaposition to the theoretical model that explains the accords adoption and implementation by regulators.

This paper presents a review of existing literature.

After reviewing of public interest theory, cultural theory, administration theory and the new-institutionalism theory, the author found little application of these theories to the capital-based regulation, particularly in relation to Basel 2 accord. There is deficiency in the literature of a conceptual theoretical framework based on which the author can explain the adoption of Basel accords. The author has provided a theoretical model that links these theories to the practice of banking regulation. This paper found deficiencies in theories of how banks should be regulated as compared to several theories that explains why banks are regulated.

After reviewing of public interest theory, cultural theory, administration theory and the new-institutionalism theory, the author found little application of these theories to the capital-based regulation, particularly in relation to Basel 2 accord. There is deficiency in the literature of a conceptual theoretical framework based on which the author can explain the adoption of Basel accords. The author has provided a theoretical model that links these theories to the practice of banking regulation. This paper found deficiencies in theories of how banks should be regulated as compared to several theories that explains why banks are regulated.

This paper aims to analyzing the main risk culture traits of a sample of Central Banks and Supervisory Authorities in Europe as well as of the European Central Bank (ECB).

Risk culture is measured through text data processing of the official discourses made by the head Supervisory Authorities, during the years from 1999 to 2012.

Results highlight heterogeneous but converging risk cultures for European Union (EU) supervisors and the presence of a “distance” between these cultures and the risk culture of the ECB.

The paper points out that cultural differences, especially in presence of credit markets still characterized by poor integration, could create unwanted distortion effects during the initial stages of the Banking Union.

We employ three systemic risk measures of banks, including the systemic risk index (SRISK) and marginal expected shortfall (MES) of Brownlees and Engle (2017) and the conditional Value-at-Risk (ΔCoVaR) of Adrian and Brunnermeier (2016), to analyze bank's exposure and contribution to systemic risk in the banking system when a financial crisis occurs. We find evidence that time-varying systemic risk exists, and systemic risk exposures escalate with the interconnectedness of banks. We also find revenue diversification is another significant factor that reduces a bank's exposure to systemic risk but not for banks in Taiwan and Singapore.

During the Greenspan‐Bernanke era, the responses of Federal Reserve officials to financial crises resulted in an extraordinary involvement of the US central bank in the non‐banking financial sector. The purpose of this paper is to examine the informal and evolving conceptual framework that allows Federal Reserve officials to pursue a strategy of “constrained discretion” in responding to financial disturbances.

Behavioural economics relies on designed psychological and economic experiments to predict behavioural biases at the group level. As an analogue applicable to understanding biases in the intuitive judgments of individual policymakers, a naïve behavioural economics approach relies on intuitive or naive psychology and the interpretation of historical events as natural experiments to explain why intuitive judgments of Federal Reserve officials will contain biases.

Under the Greenspan‐Bernanke conceptual framework, Federal Reserve officials exercise “constrained discretion” in responding to disturbances arising from macro structural changes in the financial sector. The two key concepts are the Greenspan‐Bernanke doctrine on how the Federal Reserve officials respond to financial asset price bubbles and their collapses, and Bernanke's financial accelerator. Several examples are cited in which policy errors made by Alan Greenspan were attributable to identifiable biases in his intuitive judgment. In addition, Bernanke's response to the financial crisis of 2007‐2009 was based on his interpretation of the Great Depression as a natural experiment. But that interpretation was heavily biased by the influence of Milton Friedman on Bernanke's intuitive judgment. While Federal Reserve officials will need to exercise discretionary judgment in responding to financial crises, the potential for errors due to biases in that judgment can be reduced through regulatory reforms that lessen the potential for financial crises to occur.

While quantitative analyses of the effects of the Federal Reserve's actions on non‐bank financial institutions and the financial markets are ongoing, little attention has been given to the psychological aspects of the intuitive judgment that influences the discretionary decisions of the policymakers.

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.

Introduction: The COVID-19 crisis is a major shock to the global economy, with serious repercussions on financial markets. Most economies, especially high-income ones, have made considerable efforts, including financial ones, to stimulate aggregate demand in the face of a loss of income on the one hand and to maintain the production potential of companies on the other. This fact required the intervention through various instruments on the money market, but also the mention of the money creation capacity of the banks through the lending mechanism. Apparently, this should have affected the stability of banking systems by increasing the credit risk assumed, but this was avoided because banks are better capitalised and the regulatory framework, including the macroprudential one, was strengthened after the financial crisis of 2007–2009. Therefore, the national authorities had sufficient leeway to respond to the recession and market instability caused by the pandemic by relaxing prudential requirements.

Aim: A theoretical review of literature and good practice of developed banking systems on how macroprudential policy can supplement expansionary monetary policy in overcoming the pandemic crisis. Identifying the risks for the excessive use of relaxed macroprudentialism and formalising recommendations to combine it with monetary policy instruments to overcome stressful situations for banking systems.

Method: In order to study the subject approached in this chapter, there were applied the following research methods, such as analysis and synthesis of conceptual approaches of macroprudentiality and the tools they use, deduction and induction, in order to elucidate the influencing factors using the relaxation of macroprudentiality in the context of pandemic crisis and research on the high-income states experience in order to formulate conclusions and opinions.

Findings: The authors find that countries have responded quickly to the outbreak of the crisis by easing capital and liquidity requirements, or at least refraining from the previously planned tightening. At the same time, the authors noticed that loan-based measures and minimum reserve requirements were rarely relaxed and risk weights were not changed at all.

Originality of the Study: The correlation of different monetary and macroprudential policy instruments in the need to relax them, the analysis of possible risks and the formulation of conclusions on the usefulness of applying these methods to solve the economic effects of the COVID-19 pandemic.

Implications: Our results suggest that the macroprudential instruments can only be applied if banking systems have previously succeeded in consolidating the capitalisation of banks. A restrictive macroprudential policy can create premises for the use of excess capital in situations such as that generated by the pandemic, but it is recommended only to economies where overregulation does not affect development in periods of normal evolution.

Several developing economies witnessed a large number of systemic financial and currency crises since the 1980s that resulted in severe economic, social, and political problems. The devastating impact of the 1982 and 1994–1995 Mexican crises, the 1997–1998 Asian financial crisis, the 1998 Russian crisis, and the ongoing financial crisis of 2008–2009 suggests that maintaining financial sector stability through reduction in vulnerability is highly crucial. The world is now witnessing an unprecedented systemic financial crisis originated from the USA in September 2008 together with a deep worldwide economic recession, particularly in developed countries of Europe and North America. This calls for devising and using on a regular basis an appropriate and effective monitoring and policy formulation system for detecting and addressing vulnerabilities leading to crisis. This chapter proposes a macroprudential/financial soundness monitoring, analysis, and remedial policy formulation system that can be used by most developing countries with or without crisis experience as well as with limited data. It also discusses a process for identifying and compiling a set of leading macroprudential/financial soundness indicators. An empirical illustration using Philippines data is presented. There is an urgent need for increased coordination, collaboration, and partnership among central banks, banking and financial market supervision agencies, and ministries of finance, economic, and planning for proper macroprudential monitoring. A high-level national financial stability committee under the auspices of the head of the state as well as a ‘‘regional financial stability board’’ needs to be established to complement and support the activities of an “international stability board.”