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The impact of diversification on bank stability and risk remains an ongoing topic of discussion with inconclusive results. Hence, this study investigated the implications of income diversification on bank stability within African markets.

The study utilised longitudinal financial data on 45 countries from 2000 to 2017 and employed static and dynamic panel model estimation.

The results of the study suggest income diversification technique could improve financial stability throughout typical and crisis periods which validate portfolio management theory. The study also confirms the “too big to fail” hypothesis, extensive diversifying over an optimal range negatively impacts stability. Banks with a high level of liquidity, a higher operating efficiency and a larger deposit ratio become more resilient. Banking capital regulations found to be the appropriate monitoring instrument for lowering risks and maintaining stability. However, profitability was found to have a positive effect on bank risk-taking. The finding also suggests that political institutions have substantial, direct implications that are positively related to bank fragility. Macroeconomic factors such as gross domestic product (GDP) growth and inflation also influenced bank stability.

This study has important implications for bankers, regulators and academicians concerned about the effect of diversification on a bank’s risk-taking or stability in developing economies.

To the best of the author’s knowledge, this is the first study on Africa to analyse the quadratic influence of income diversification and the effects of political institutions on the level of bank stability.

This paper aims to present an analysis of the role of financial incentives, moral hazard and conflicts of interests leading up to the 2008 financial crisis.

The study’s analysis has identified common structural flaws throughout the securitization food chain. These structural flaws include inappropriate incentives, the absence of punishment, moral hazard and conflicts of interest. This research sees the full impact of these structural flaws when considering their co-occurrence throughout the financial system. The authors address systemic defects in the securitization food chain and examine the inter-relationships among homeowners, mortgage originators, investment banks and investors. The authors also address the role of exogenous factors, including the SEC, AIG, the credit rating agencies, Congress, business academia and the business media.

The study argues that the lack of criminal prosecutions of key financial executives has been a key factor in creating moral hazard. Eight years after the Great Recession ended in the USA, the financial services industry continues to suffer from a crisis of trust with society.

An overwhelming majority of Americans, 89 per cent, believe that the federal government does a poor job of regulating the financial services industry (Puzzanghera, 2014). A study argues that the current corporate lobbying framework undermines societal expectations of political equality and consent (Alzola, 2013). The authors believe the Singapore model may be a useful starting point to restructure regulatory agencies so that they are more responsive to societal concerns and less responsive to special interests. Finally, the widespread perception is that the financial services sector, in particular, is ethically challenged (Ferguson, 2012); perhaps there would be some benefit from the implementation of ethical climate monitoring in firms that have been subject to deferred prosecution agreements for serious ethical violations (Arnaud, 2010).

The authors believe the paper makes a truly original contribution. They provide new insights via their analysis of the role of financial incentives, moral hazard and conflicts of interests leading up to the 2008 financial crisis.

The purpose of this study is to examine how five different multi-level governance (MLG) models affect place branding (PB) performance in Saudi Arabia.

In hierarchical administrative systems, central governments exert control on PB, influencing its effectiveness. While PB as such is widely studied, the effect of MLG on PB performance in centralized administrative systems remains understudied. The study is approached as a multiple case study of nine cities.

The study reveals that different MLG models indeed affect PB performance differently. Direct access to central leadership and resources boosts branding performance, while privatization promotes flexibility with similarly positive effects. Study findings, furthermore, show that some cities are considered too big to fail. Cities such as Riyadh and Neom are of prime importance and receive plenty of resources and leadership attention, while others are considered peripheral, are under-resourced and branding performance suffers accordingly. Emerging differences in PB performance associated with different MLG models are thus likely to deepen the gap between urban economic winners and losers.

This paper introduces five MLG models based on the actors involved in PB, their interactions and their access to resources. For each model, this paper assesses other factors which may influence the effectiveness of PB as well, such as access to the national leadership and staff capacity. This research thereby adds to the literature by identifying specific factors within MLG models influencing PB performance in hierarchical administrative systems.

Because systemically important banks' takeovers in the US were expected to contain the 2008 global financial crisis (GFC) but were found to have imposed large cost on shareholders, this paper examines the effectiveness of these acquisitions during the GFC and investigates what went wrong with the market for corporate control of large banks.

This paper presents a model of the disciplinary takeover based on the efficient market hypothesis which provides appropriate measures for it to examine the financial performance of acquiring banks after takeover.

The results indicate that the takeover market for large banks was ineffective in two aspects: the market did not distinguish strong banks from weak banks before the crisis and acquirers performed worse after takeover. Such ineffectiveness reflects the fundamental deficiencies of large bank takeovers arising from some key distinguishing characteristics of large banks.

The sample size of systemically important banks' takeovers is small so large-sample standard statistical inferences cannot be used.

The deficiencies of large bank takeovers need to be rectified in order to aid in resolving future crises.

This paper provides rare and detailed insight based on case studies of large US bank takeovers during the GFC.

The purpose of this paper is to study the evolution of financial contagion between Eurozone banks, observing the credit default swaps (CDSs) market during the period 2009–2017.

The authors use a dynamic spatial Durbin model that enables to explore the direct and indirect effects over the short and long run and the transmission channels of the contagion.

The results show how contagion emerges through physical and financial market links between banks. This finding implies that a bank can fail because people expect other related financial institutions to fail as well (self-fulfilling crisis). The study provides statistically significant evidence of the presence of credit risk spillovers in CDS markets. The findings show that equity market dynamics of “neighbouring” banks are important factors in risk transmission.

The research provides a new contribution to the analysis of EZ banking risk contagion, studying CDS spread determinants both under a temporal and spatial dimension. Considering the cross-dependence of credit spreads, the study allowed to verify the non-linearity between the probability of default of a debtor and the observed credit spreads (credit spread puzzle). The authors provide information on the transmission mechanism of contagion and, on the effects among the largest banks. In fact, through the study of short- and long-term impacts, direct and indirect, the paper classify banks of systemic importance according to their effect on the financial system.

This paper investigates the role of market structure and institutional quality in determining bank capital ratios in developing economies.

The generalised methods of moment technique is used to control for auto-correlation and endogeneity in a sample of 79 publicly listed commercial banks. The study period is between 2000 and 2016.

Results show that market structure (proxied with bank competition) as well as institutional quality (regulatory quality) lowers bank capital in the sampled banks. This suggests that banks operating in less competitive markets with good regulatory quality do not need to engage in excessive risk-taking activities that would necessitate holding increased level of capital. Furthermore, the interaction of competition and regulatory quality reinforces the main findings, suggesting the importance of the two variables in determining bank capital ratio.

Research has limitation in that the study investigated publicly listed commercial banks, the findings may not be applicable to non-listed banks.

Taking into cognisance the developing nature of the banking system in Africa, the findings from this study imply that the maintenance of an improved regulatory quality in an environment where healthy competition exists would encourage banks to hold capital ratios appropriate for their level of banking activities, that is, the banks would not engage in excessive risk-taking activities.

This is one of the first papers that examine the effect of market structure and institutional quality on bank capital ratios in developing countries that have bank-based financial systems.

The authors estimate systemic risk in the Korean economy using the econometric measures of commonality and connectedness applied to stock returns. To assess potential systemic risk concerns arising from the high concentration of the economy in large business groups and a few export-oriented sectors, the authors perform three levels of estimation using individual stocks, business groups, and industry returns. The results show that the measures perform well over the study’s sample period by indicating heightened levels of commonality and interconnectedness during crisis periods. In out-of-sample tests, the measures can predict future losses in the stock market during the crises. The authors also provide the recent readings of their measures at the market, chaebol, and industry levels. Although the measures indicate systemic risk is not a major concern in Korea, as they tend to be at the lowest level since 1998, there is an increasing trend in commonality and connectedness since 2017. Samsung and SK exhibit increasing degrees of commonality and connectedness, perhaps because of their heavy dependence on a few major member firms. Commonality in the finance industry has not subsided since the financial crisis, suggesting that systemic risk is still a concern in the banking sector.

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.

Basel III regulations require banks to protect themselves against strategic risk. This paper aims to provide a comprehensive and measurable definition of this risk and proposes a framework to estimate economic capital requirements.

The paper studies the literature and solicits expert opinion in formulating a comprehensive and measurable definition of strategic risk. The paper postulates that the economic capital for a bank’s strategic risk should be estimated using the cost of equity as the profitability threshold, rather than zero and develops a simulation-based framework to estimate economic capital.

The framework closely matches the actual economic capital outlay for strategic risk from our case study of ABN AMRO. It is shown that a bank’s strategic growth plans can fall into one of two scenarios based on risk-return characteristics. In one scenario, the required economic capital outlay will increase, and decrease in the other.

This framework is generalizable and makes use of widely accepted and used practices in banks, making it readily implementable in practice. It does not introduce errors resulting from model selection, parameterizations or complex calculations.

Society would be worse off in the absence of banking and lending services. Banks need to take risks to grow and stay competitive. The framework facilitates better strategic risk management, protecting banks from collapse and reducing the need for taxpayer-funded bailouts.

The paper provides a measurable and practitioner-verified definition of strategic risk and proposes a simple framework to estimate economic capital requirements, a crucial topic, given the threats and increased levels of strategic risk facing banks.

This paper aims to study the impact of (regulatory and nonregulatory) liquidity on contingent convertible (CoCo) issuance and the relationship between CoCos and asset quality.

The analysis of this study comprises two stages. In the first stage, the authors used a logit model to test whether banks with riskier assets as well as lower solvency and (regulatory and nonregulatory) liquidity are more likely to issue CoCos. In the second stage, the authors used univariate analysis and fixed effects regression to measure the impact of Additional Tier 1 (AT1) CoCos on the quality of the issuer’s assets.

The study shows that regulatory liquidity ratios are negatively related to CoCo issuance. This study also finds that the likelihood to issue CoCo is higher when banks have lower regulatory capital or are less risky. Asset quality is found to not change significantly after the issuance. All in all, these results suggest that while solvency regulation is primarily regarded as the main motivation for CoCo issuance, liquidity regulation also matters.

Despite the fact that CoCos have been emerging as an alternative way to help banks meet regulatory capital requirements, the paper argues that the relation between liquidity regulation and CoCos should be taken into account.

This study presents an empirical analysis on the CoCos instrument, focusing on the relationship between AT1 CoCos and liquidity regulation. Therefore, it serves to fill a gap in the literature on the underlying forces behind CoCo issuance. Moreover, this study measures the impact of AT1 CoCos issuance on bank risk, particularly on the quality of the issuer’s assets.