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This paper aims to investigate whether revenue diversification affects the financial sustainability of microfinance institutions (MFIs).

The study uses a worldwide panel data set of 443 MFIs in 108 countries for the period 2013–2018 and two-step system Generalized Method of Moments estimation model.

The study finds that revenue diversification has a significant and positive effect on the financial sustainability of MFIs.

The findings of this study actually offer important managerial and policy lessons on MFIs’ financial sustainability. Microfinance managers and policymakers should consider revenue diversification as a strategy through which MFIs can attain financial sustainability instead of overreliance on donations and government subsidies

Unlike previous studies that examined revenue diversification in the context of banking firms, this study contributes to literature by examining the impact of revenue diversification of the financial sustainability of MFIs.

This paper examines the effectiveness of the three macro-prudential measures introduced by the Korean government in 2010 and 2011: (i) introduction of limit for FX forward positions of domestic banks and foreign bank branches, (ii) reintroduction of tax on foreign investors' earnings from Korean government bonds, and (iii) imposition of macro-prudential stability levy on non-deposit foreign currency liabilities appeared in bank balance sheets. The results show that the three measures were not successful: The limits of FX forward position did not lead to the decrease in foreign borrowings. The reintroduction of the tax did not reduce foreign investments in Korean government bonds. Lastly, the levy on non-deposit foreign currency liabilities did not lower the foreign borrowings from the banks and did not result in more financing through deposits for banks. The ineffectiveness of the capital flow management system in controling the amount of foreign capital flows implies that the system might not be effective in mitigating the pressure on exchange rate caused by excessive volatility of foreign capital flows.

In a bid to enhance the stability of banks, supervisory authorities in sub-Sahara Africa (SSA) have also adopted international bank regulatory standards based on the Basel core principles. This paper aims to investigate the effectiveness of these regulations in mitigating Bank risk (instability) in SSA. The focus of empirical analysis is on examining the implications of four regulations (capital, activity restrictions, supervisory power and market discipline) on risk-taking behaviour of banks.

This paper uses two dimensions of financial stability in relation to two different sources of bank risk: solvency risk and liquidity risk. This paper uses information from the World Bank Regulatory Survey database to construct regulation indices on activity restrictions and the three regulations pertaining to the three pillars of Basel II, i.e. capital, supervisory power and market discipline. The paper then uses a two-step system generalised method of moments estimator to estimate the impact of each regulation on solvency and liquidity risk.

The overall results show that: regulations pertaining to capital (Pillar 1) and market discipline (Pillar 3) are effective in reducing solvency risk; and regulations pertaining to supervisory power (Pillar 2) and activity restrictions increase liquidity risk (i.e. reduce bank stability).

Given some evidence from other studies which show that market power (competition) tends to condition the effect of regulations on bank stability, it would have been more informative to examine whether this is really the case in SSA, given the low levels of competition in some countries. This study is limited in this regard.

The key policy implications from the study findings are three-fold: bank supervisory agencies in SSA should prioritise the adoption of Pillars 1 and 3 of the Basel II framework as an effective policy response to enhance the stability of the banking system; a universal banking model is more stability enhancing; and there is a trade-off between stronger supervisory power and liquidity stability that needs to be properly managed every time regulatory agencies increase their supervisory mandate.

This paper provides new evidence on which Pillars of the Basel II regulatory framework are more effective in reducing bank risk in SSA. This paper also shows that the way regulations affect solvency risk is different from that of liquidity risk – an approach that allows for case specific policy interventions based on the type of bank risk under consideration. Ignoring this dual dimension of bank stability can thus lead to erroneous policy inferences.

This paper aims to examine the relevance of cross-border activity in the European banking sector, evaluating the role of differences in regulation to explain the level of interest in entering foreign markets.

The sample considers all banks in the European Union (EU 28) existing at year-end 2017, and information about the ultimate owners’ nationality to classify local and foreign banks is collected. The analysis provides a mapping of regulatory restrictions for foreign banks and evaluates how they impact the role of foreign players in the deposit and lending markets.

Results show that the lower are the capital adequacy requirements, the higher are the amounts of loans and deposits offered by non-European Economic Area banks and, additionally, the higher the probability of having a foreign bank operating in the country.

This paper provides new evidence on regulatory arbitrage opportunities in the EU and outlines differences among EU countries not previously studied.

A controversy about whether liberalization through market opening is a necessary and sufficient condition for a stable and balanced growth in the developing countries was retriggered by the 2008 global financial crisis. This paper aims to analyze 1) the impact of market openness on the economic growth and financial development, 2) the dynamic correlation between the compositional change in foreign investments and the returns of domestic financial markets, 3) the effect of foreign portfolio investment on the stock market activity (liquidity and profitability). Our empirical findings infer that the income level has a positive relationship with financial openness and the foreign portfolio investments cause price fluctuations in the domestic stock market. These results imply that the precautionary and effective policies such as prudential regulations on the short-term capital transactions are strongly needed to emerging markets in order to prevent the excessive fluctuations in the financial markets over the macroeconomic fundamentals.

The purpose of the paper is to examine the differences in the impact of financial stress in advanced and emerging economies.

The authors employ a panel vector autoregression model (PVAR) for a comparative analysis of the relationship between financial stress, economic growth and monetary stability in 14 advanced and emerging economies. A homogeneous measure of financial stress is constructed and measured as an index that provides signals of stress episodes in an economy.

The impact of financial stress shocks is greater on the economic growth of advanced economies; likewise, financial stress shocks are significant only in advanced economies. The interbank interest rate is negatively affected by financial stress in emerging economies. In general, the results show a clear view of the importance of financial stability and the economic relevance of financial stress measures in the context of macro-prudential regulation.

The results can be extended to monetary policy to implement measures that mitigate the impact of future financial crises.

This paper empirically investigates whether trade openness (TO) in Brazil, Russia, India, China and South Africa (BRICS) countries affects how banks might employ loan loss provisions (LLPs) to smooth out their earnings and how adopting the International Financial Reporting Standards (IFRS) can mitigate it.

The analysis includes 78 commercial banks from five BRICS nations and spans 2014 through 2020. To test these hypotheses, the authors utilized a fixed-effect and two-step system panel generalized methods of moments (GMM) estimator.

TO positively affects income smoothing (earnings management) across BRICS commercial banks. The effect is clearer in banks that make financial reports under the IFRS. Path analysis reveals that the effect of TO is driven by nonperforming loans (NPLs). Additionally, the IFRS restricts earnings management in the BRICS banking sector when a better institutional environment is present. The authors found that accounting rules (IFRS) and enforcement (better institutional settings) interact to enhance earnings’ quality.

The relationship between TO and bank earnings management practices is important for understanding the complex interplay between trade and finance and ensuring financial stability, investor confidence and regulatory compliance. This study recommends better regulations and governance mechanisms for financial reports in emerging nations like BRICS. Additionally, macro-prudential regulators and banking supervisors should work closely to ensure transparent TO decisions with improved discipline, institutional quality and regulatory support to enhance bank stability.

The study finds evidence of bank income smoothing in the BRICS and introduces TO as a determinant. It also identifies the evolving role of IFRS in the presence of higher institutional quality and TO, thereby expanding the financial reporting literature.

The paper’s aim is to consider how best to formulate sturdy regulatory frameworks for RegTech and SupTech. The paper appraises how key features of EU and UK regulatory and policy initiatives can contribute to a functional framework for RegTech and SupTech.

The paper refers to the most comprehensive empirical findings within the EU and the UK on RegTech and SupTech, including reports released by the European Banking Authority and the Bank of England. As data is only gradually becoming available about the true rate of adoption of RegTech and SupTech, the paper identifies salient areas that warrant analysis from emerging findings. In light of the relatively restricted sources of empirical data, the article’s methodological approach is directed towards the most wide-ranging and detailed sources that are currently available at EU and UK levels.

The paper reveals distinct variations in how the EU and UK have pursued regulatory approaches towards RegTech and SupTech growth. However, there are many shared features in the respective approaches. The paper argues that a regulatory framework should ideally be imbued with overarching strategies and policy objectives, as well as with practical measures through innovation facilitators, such as sandboxes. Yet, legislative (top-down) intervention will be the significant ingredient in guaranteeing legal clarity for RegTech and SupTech.

By understanding the nuances in EU and UK approaches, the paper advocates for pragmatic reasoning when formulating a regulatory response. The importance of the article is in its focus on the elements of EU and UK regulatory approaches that are most capable of guaranteeing clarity on standards relating to RegTech and SupTech. The paper makes a vital contribution to existing commentary by determining how a balance can be struck between “top-down” and “bottom-up” types of regulation (i.e. should regulation be entirely concerned with industry-driven standards, such as codes of conduct?).

The European Parliament and Commission are considering introducing a green supporting factor (GSF) or brown penalty (BP) for capital reserve requirements. This paper aims to estimate the potential impact such a policy intervention may have on both capital reserves of European banks and the cost and availability of capital to “green” and “brown” investments.

The paper draws on the existing empirical and theoretical literature on the impacts of changes to capital reserve requirements on the real economy. It applies these estimates on the particular policy intervention currently being discussed at EU level to estimate the potential range of impacts on the cost of capital – measured in basis points – and the availability of capital – measured in per cent changes to lending.

A GSF would have a limited effect on overall capital requirements of banks compared to a BP – given the larger universe of assets on which such a penalty would be applied. The estimated effect is a reduction in capital requirements associated with a GSF of around €3-4bn based on baseline “green” definitions. In terms of cost of capital, the paper estimates a reduction of 5 to 26 basis points for green projects (with inverse expected effects for a BP). In terms of availability of capital, analysing a BP suggests a potential reduction in lending to brown assets of up to 8 per cent.

The paper provides direct evidence, with the first quantitative analysis of the potential impact of the current policy proposition discussed at EU-level.

This paper is motivated by the heated debates preceding the introduction of additional regulatory requirements of Basel III on capital conservation buffer (CCB) and regulatory leverage (RLEV) in banks of emerging markets. The paper aims to examine which policy ratio can improve bank efficiency (BE), in one of the most resilient banking settings in the Middle East and North Africa (MENA) region.

The analysis is performed on a sample of 13 banks for the period 2010–2018 in Egypt and proceeds in two steps. In the first step, the data envelopment analysis model is used to derive bank-specific efficiency scores. In the second step, BE scores are regressed on the two types of regulatory capital and a set of control variables.

The paper is motivated by regulatory debates on the viability of RLEV and CCB in enhancing BE. The results show that higher RLEV and CCB are associated with a reduction in BE and that RLEV is highly associated with BE compared to CCB. Hence, results are relevant to policymakers in designing measures for improving BE in emerging markets.

The findings contribute to a small but growing stream of research on capital adequacy in emerging markets. This study provides results on the viability of risk-based vs non-risk-based capital requirements. The findings are also relevant to bank regulators in similar emerging market settings in their efforts to introduce and phase in minimum leverage requirements according to Basel III.