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This study aims to investigate the coordinated impact of regulations on the predicted probability of a banking crisis in Africa.

The study used the dynamic panel instrumental variable probit regression model of 52 African economies over the period 2006 to 2018.

The authors observe that banking crisis is persistent for few years but dissipates in the long run. The results show that board mechanism and ownership control are important in reducing the likelihood of banking crisis. The authors found a negative impact of regulatory capital and monetary policy on the predicted probability of a banking crisis while regulatory quality was not strong in reducing the likelihood of banking crisis. There was also evidence to support that regulatory capital and monetary policy augment the negative impact of board mechanism and ownership control on the predicted probability of a banking crisis.

The limitation of the study is that it did not explore all measures of regulatory framework and how they impact banking crisis. However, it has an advantage of using alternative measures of regulations in a banking crisis probability model. Therefore, future studies should include other macro-prudential regulations, regulatory environments and supervision and observe how they are coordinated to reduce possible crisis in a robust methodological framework.

The research has policy implications for monetary authorities and policymakers to set coordinated regulations through internal banking mechanisms that are relevant in sustaining banking system stability goals. Countries in Africa should strengthen their quality of regulation in such a way that it can play a strong and complementary role to a robust internal control mechanisms, so as to maintain stability in the banking system. In general, regulators and policymakers should design greater coordination of external and internal regulations through a single regulatory framework and a common resolution mechanism that make the banking system more robust in curbing possible crisis.

The policy implication of the study is to build banking confidence in the society.

This study analyses the interactions of different components of internal and external regulatory framework in helping to reduce the probability of a banking crisis in Africa.

This chapter estimates a regime switching Taylor Rule for the European Central Bank (ECB) in order to investigate some potential nonlinearities in the forward-looking policy reaction function within a real-time framework. In order to compare observed and predicted policy behavior, the chapter estimates Actual and Perceived regime switching Taylor Rules for the ECB. The former is based on the refi rate set by the Governing Council while the latter relies on the professional point forecasts of the refi rate performed by a large investment bank before the upcoming policy rate decision. The empirical evidence shows that the Central Bank’s main policy rate has switched between two regimes: in the first one the Taylor Principle is satisfied and the ECB stabilizes the economic outlook, while in the second regime the Central Bank cuts rates more aggressively and puts a higher emphasis on stabilizing real output growth expectations. Second, the results point out that the professional forecasters have broadly well predicted the actual policy regimes. The estimation results are also robust to using consensus forecasts of inflation and real output growth. The empirical evidence from the augmented Taylor Rules shows that the Central Bank has most likely not responded to the growth rates of M3 and the nominal effective exchange rate and the estimated regimes are robust to including these additional variables in the regressions. Finally, after the bankruptcy of Lehman Brothers the policy rate has switched to a crisis regime as the ECB has focused on preventing a further decline in economic activity and on securing the stability of the financial system.

The recent financial crises in the world have brought attention to the need for a new international financial architecture which rests on crisis prevention, crisis prediction and crisis management. It is therefore both desirable and vital to explore new predictive techniques for providing early warnings to regulatory agencies. The purpose of this study is to propose a new technique to prevent future crises, with reference to the last banking crises in Turkey.

ANN is utilized as an inductive algorithm in discovering predictive knowledge structures in financial data and used to explain previous bank failures in the Turkish banking sector as a special case of EFMs (emerging financial markets).

The empirical results indicate that ANN is proved to differentiate patterns or trends in financial data. Most of the bank failures could be predicted long before, with the utilization of an ANN classification approach, but more importantly it could be proposed to detect early warning signals of potential failures, as in the case of the Turkish banking sector.

The regulatory agencies could use ANN as an alternative method to predict and prevent future systemic banking crises in order to minimize the cost to the economy.

This paper reveals that the ANN approach can be proposed as a promising method of evaluating financial conditions in terms of predictive accuracy, adaptability and robustness, and as an alternative early warning method that can be used along with the most common alternatives such as CAMEL, financial ratio and peer group analysis, comprehensive bank risk assessment, and econometric models.

This study aims to empirically investigate the impact of political instability on the banking stability of the dual banking system in the Middle East and North African (MENA) countries.

The study measures banking stability with probability of default (PD) and Zscore by employing the generalised method of moment (GMM) between 2007 and 2021 on the dual banking system in the region. The authors further estimate short-long-run situations coupled with a robustness test using a generalised least square (GLS) model.

The authors' findings indicate that institutional factors of political stability, crisis period, high-crisis countries, law and order and macroeconomic indicators influence the two types of banking stability in the region. The authors found the consistency of the factors explaining stability in the region in both short-and long-run situations. Consequently, the study also reveals the adverse effects of crisis periods and high-crisis countries on banking stability.

The results of this study explicitly identify the critical need for sustaining political stability and abiding by laws and order to achieve dual banking stability in the region. Therefore, policymakers may consider allowing the region's banks to operate beyond retail banking since diversification enhances banking stability.

The authors' study balances by employing dual stability measurement in predicting the impact of political instability, law and order and other indicators on the MENA region's two banking models. This study uncovers the effect of the global crisis period on banking stability and high-crisis countries in the region and verifies the models' robustness.

The number of US commercial banks has declined by about 50% over the last two decades. This change could lead to a potential decline in competition and a potential increase in market power in the agricultural banking market. The focus of this study is to examine whether the risk of failure and the performance of agricultural banks has been affected by bank consolidations.

The impact of bank competition on performance and financial stability of agricultural banks is studied using a Lerner index as a measure of market power. A Z-score is constructed to measure bank stability. Similarly, the return on assets (net income to total assets ratio), return on equity (net income to the total equity ratio), agricultural loan ratio and agricultural loan volume are used as performance measures for agricultural banks. Two-way fixed effect regression models are estimated to measure the impact of competition on financial stability and performance.

Results indicate that bank competition has a U-shaped effect on the probability of default and an inverted U-shaped effect on volume and proportion of agricultural lending. There also exists evidence of a positive but non-linear effect of bank market power on the profitability of agricultural banks.

There is limited literature on the impact of bank competition on financial stability and performance of US agricultural banks. Agricultural banks hold more than 40% of US farm debt. A decrease in the number of banks or the level of competition in agricultural banking may cause an adverse effect on relationship lending. The key findings imply that bank regulatory strategies should focus on enhancing (reducing) competition in more (less) concentrated banking markets to improve the financial health and performance of agricultural banks.

The purpose of this paper is to investigate the role of implicit deposit insurance in North Cyprus Banking Sector during the period 1984‐2002.

A multivariate logit model is an empirical methodology that identifies the probability of bank failure. The model links the probability of banking problems to a set of bank‐specific factors, macro‐environment and structural weaknesses that may have exacerbated the internal troubles of the financial institutions.

The empirical findings suggest that in addition to the microeconomic variables, high credit expansion to private sector, implicit deposit insurance, existence of economic rehabilitation programmed, financial liberalization, weak regulation and supervision played an important role in the escalation of the 2000‐2002 banking distress in North Cyprus.

For further research, this paper may extend the time period and include other macroeconomic variables such as inflation, exchange pressure that may have a direct effect on bank failure in North Cyprus.

This paper presents a practical application of the deposit insurance policy as a main determinant of bank failure, which would help bank examiners, investors and regulators in their decisions to alert management in time, to prevent bank failure. The ability for early detection of any structural or financial weaknesses in the country will help to minimize financial costs of the island that brought about by financial instability.

Overall, the empirical results that are obtained by logit model analysis are quite robust. The logit regression results reveal that the predicted values, i.e. the potential risk levels for Mediterranean Bank was very high in this analysis. Towards 2005 Mediterranean Bank had to close, which prove that the model is robust.

This chapter identifies three crisis warning indicators driven from trading in emerging markets’ carry trades, and empirically examines whether these indicators could predict two major financial crises that hit the global financial markets in the last decades — The 1997–1998 Asian crisis and the 2007–2008 global crisis. The probit regression is used to examine the power of the three indicators in forecasting financial crises, using data from eight Asian emerging countries which serve as proxies for emerging markets, independent of the origination of the crisis. I use both fixed effect and random effect estimation to measure crisis impacts. The empirical results show that financial crises could have been predicted. Probit estimation show that carry trade returns can predict a financial crisis, and the estimation results are robust to both panel level and country-level analysis. These three indicators are by no means an exhaustive list of all possible predictors of financial crisis. The literature suggests other fundamental indicators of financial crises such as the current account deficit and foreign debt. However, this chapter cannot fully consider these indicators for lack of data at this point in time. Although financial crisis may be better predicted by the well-known fundamental indicators, the contribution of this chapter is simply that carry trade-related indicators can help in predicting crises.

Indicators of financial crises generally do not have a good track record. This chapter presents an early warning system (EWS) for six countries in Asia in which indicators do work. We extract a full list of currency crisis indicators from the literature, apply factor analysis to combine the indicators, and use these factors as explanatory variables in logit models which are estimated for the period 1970:01–2001:12. The quality of the EWS is assessed both in-sample and out-of-sample. We find that money growth (M1 and M2), national savings, and import growth correlate with currency crises.

This paper aims to examine the relationship between regulation, market discipline and banking distress.

To address the empirical question put forward above, a multivariate logit model is applied to an international sample of 586 banks from 21 European countries in the period between 2000 and 2012. To give robustness to the results, different variables have been used to test the role played by market discipline and regulation as well as an alternative methodology known as duration/survival analysis.

It can be found that market discipline is a good indicator in signalling banking distress, that is, market discipline has penalized more banks with a higher likelihood of being in distress. Nonetheless, as broadly acknowledged, market discipline was not sufficient per se to avoid banking distress in Europe. With regard to regulation, this paper evidences that the adoption of other regulatory measures beyond the simple transposition of changes occurred in the EU Directives such as borrower-based measures and limits on pre-emptive exposures’ concentration, have contributed toward reducing the probability of distress of EU banks, showing that the introduction of this kind of measures was necessary and relevant. In addition, in this paper, it can be found that the NPL ratio, size, capital (including the well-known regulatory capital ratio, as well as the novel leverage ratio which discards the risk weights present in the former one) and liquidity are good indicators of banking distress which lead us to conclude that the new regulatory framework known as Basel III is on the right path to mitigate the probability that a new banking crisis similar to the last one takes place again.

The first limitation regards the period of time chosen, that is, from 2000 to 2012, empirically neglecting, to some extent the important regulatory changes occurred after the aforementioned period. Nonetheless, as mentioned in the Data and Methodology section, the period ends in 2012 because it is difficult to flag a reasonable number of banks’ bailouts afterwards, to properly run the type of model used in this paper. The second limitation is the fact that the possible changes in the risk management and risk assessment by institutions and in the behaviour of investors, acknowledge as weak and inappropriate before the on-set of the global financial crisis, albeit very relevant, are not in the scope of this paper.

Despite the welcomed changes performed by regulators so far, some aspects are not complete yet and new areas deserve more empirical work and attention by the regulators and supervisors. Some of them stem directly from the results obtained from this paper such as the enhancement and a close monitoring of the current Pillar 3 framework the increase of the adoption of more targeted tools, in a more preemptive way, to counter the build-up of risks and the implementation of the leverage ratio.

In the aftermath of the financial crisis, the identification of leading indicators signalling emerging risks to the banking system has become a major priority to central banks and supervisory authorities. As a consequence, several studies have formulated the aim of analysing predictive characteristics of a set of macroeconomic variables, such as GDP Growth, Credit-to-GDP, Inflation, M2-to-GDP, among others. Other studies take a different perspective and complement the analysis with bank-specific risk indicators. Nonetheless the aforementioned studies do not consider the relationship between regulation and market discipline and banking distress. This is the gap the authors wanted to fill, and this assessment is the main contribution of this paper.

The increased capital requirements and the implementation of new liquidity standards under Basel III sparked various concerns among researchers, academics and other stakeholders. The question is whether Basel III regulation is ideal, that is, adequate to deal with a crisis, such as the 2007–2009 global financial crisis? The purpose of this paper is threefold: First, perform a stress testing exercise on the US banking sector, while examining liquidity and solvency risk indicators jointly under the Basel III regulatory framework. Second, allow the study to cover the post-crisis period, while referring to key Basel III regulatory requirements. And third, focus on the resilience of domestic systemically important banks (D-SIBs), which are supposed to support the US financial system in times of stress and therefore whose failure causes the entire financial system to fail.

The authors used a sample of the 24 largest US banks observed over the period Q1-2015 to Q1-2021 and a scenario-based vector autoregressive conditional forecasting approach.

The authors found that the model successfully produces accurate forecasts and simulates the responses of the solvency and liquidity indicators to different real and historical macroeconomic shocks. The authors also found that the US banking sector is resilient and can withstand both historical and hypothetical macroeconomic shocks because of its compliance with the Basel III capital and liquidity regulations, which consist of encouraging banks to hold high-quality liquid assets and stable funding resources and to strengthen their capital, which absorbs the losses incurred in a crisis.

The authors developed a framework for testing the resilience of the US banking sector under macroeconomic shocks, while examining liquidity and solvency risk indicators jointly under Basel III regulatory framework, a point not yet well studied elsewhere, and most studies on this subject are based on precrisis data. The authors also focused on the resilience of D-SIBs, whose failure causes the failure of the entire financial system, which previous studies have failed to examine.