How a regulatory capital requirement affects banks’ productivity: an application to emerging economies

Duygun, Meryem; Shaban, Mohamed; Sickles, Robin C.; Weyman‐Jones, Thomas

doi:10.1007/s11123-015-0451-1

Cited by 9 publications

(6 citation statements)

References 39 publications

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“…Converting to log derivatives restates this condition in terms of the shadow input rate of return. This result is well-established in the literature on microeconomics, Braeutigam and Daughety (1983), and has been used to investigate economies of scale in banking by Hughes, Mester, and Moon (2001) and Hughes and Mester (2013) and in the measurement of banking system productivity by Boucinha, Ribeiro, and Weyman-Jones ( 2013), Duygun et al (2015).…”

Section: The Shadow Price Of Equity In Deposit Taking Financial Institutionsmentioning

confidence: 66%

Detecting zombie banks

Fiordelisi

Radic

Weyman‐Jones

2021

The European Journal of Finance

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Capital adequacy has become the main regulatory tool to achieve financial stability in the last twenty years. While most papers analysed the effect of capital adequacy on risk taking, there is a lack of evidence on the relationship between deleveraging and the return on equity capital. In this paper, we examine the evolution of the banking system in Japan over the period 2000-16, where the re-capitalization issue has already played a major role in policy making. Specifically, we estimate the shadow return on equity capital for both listed and unlisted banks by measuring the loans-funding-equity technology through the dual cost function, controlling for risk exposure and bad loans, and accounting for both the standard asset-based model of bank outputs, and incomebased model. Such an approach is likely to be important if the central bank permits banks with unsustainable balance sheets to continue in existence, and we refer to this as zombie banking. Overall, our results show that deleveraging did reduce the shadow return on equity for the City banks. We also find that that the presence of 'zombie' banks was concentrated and large among the smaller less diversified Regional Banks.

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Section: The Shadow Price Of Equity In Deposit Taking Financial Institutionsmentioning

confidence: 66%

Detecting zombie banks

Fiordelisi

Radic

Weyman‐Jones

2021

The European Journal of Finance

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“…Most of the literature has estimated cost functions with the same inputs while the number of outputs has varied from two to five. 17 Finally, we follow Berger and Mester (1997), Hughes and Mester ( 2008 ), Fiordelisi et al ( 2011 ), Boucinha et al ( 2013 ) and Duygun et al ( 2015 ) and employ equity to total assets as a quasi-fixed input to control for differences in risk preferences. Table 3 presents descriptive statistics for the variables included in the model.…”

Section: Datamentioning

confidence: 99%

“…( 4 ) including equity capital can be employed to obtain a shadow price of equity capital. We follow Berger and Mester (1997), Bos and Schmiedel ( 2007 ), Hughes and Mester ( 2008 ), Shen et al ( 2009 ), Fiordelisi et al ( 2011 ), Boucinha et al ( 2013 ) and Duygun et al ( 2015 ) and include the equity ratio in the cost equation. The shadow cost of the equity ratio (SCOER) can then be computed as the negative of the partial derivative of the cost function with respect to the equity ratio and shows the cost savings associated with an increase in the equity ratio.…”

Section: Computing Total Factor Productivity Growth (Tfpg) In the Eur...mentioning

confidence: 99%

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The productivity growth of euro area banks

Huljak

Martin²,

Moccero

2022

J Prod Anal

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We study the performance of the banking system in the Eurozone over the period 2006–2017 as measured by total factor productivity growth (TFPG) and its components. We find that Total Factor Productivity growth for the median euro area bank decreased from around 2.6% in 2007 to below 1.7% in 2017, driven mainly by a decline in technical efficiency. In addition, we control for unobserved heterogeneity across banks and disentangle persistent and time-varying inefficiency in the banking sector. This modelling choice is important to avoid distorted and biased inefficiency estimates. We find that cost efficiency in the euro area banking sector amounted to around 84% on average over the 2006 to 2017 period. The largest part of bank inefficiency is persistent, suggesting that structural long-term factors (such as location, client structure, macroeconomic environment, regulation, etc.) play a bigger role than time-varying factors.

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“…Applying this model, Duygun et. al (2015) confirm the importance of regulated equity capital as a constraint on cost minimizing behavior of banks in emerging economies.…”

Section: Shadow Prices Based On the Cost Functionmentioning

confidence: 99%