Macroeconomic Impact of Bank Regulation and Supervision: A Cross-Country Investigation

Neyaptı, Bilin; Dinçer, N. Nergiz

doi:10.2753/ree1540-496x500103

Cited by 23 publications

(5 citation statements)

References 27 publications

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“…Recent studies find that banking regulation improves bank performance and stability, including a decline in NPLs in many emerging economies (see, e.g. Fu, Lin, and Molyneux 2014; Klomp and de Haan 2014;Neyapti and Dincer 2014;Ozkan, Balsari, and Varan 2014). Higher levels of bank regulation may decrease bank competition, thereby improving the stability of the banking system, which supports the evidence reported by Cao and Shi (2001) and Riordan (1993).…”

Section: Literature Review and Hypothesis Developmentsupporting

confidence: 59%

Real estate investments and financial stability: evidence from regional commercial banks in China

Zhang

Cai

Liu

et al. 2016

The European Journal of Finance

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The 2008 US subprime mortgage crisis demonstrated how developments in real estate markets can cause instability in the banking sector and raised concerns in many emerging economies with significant real estate development and a rapidly growing commercial banking sector, particularly in China. There is clear evidence that commercial banks in China, especially regional commercial banks, have lent significantly to the real estate sector. The recent slowdown in the housing market in China and the increase in nonperforming loans (NPLs) in China's commercial banking sector motivated us to investigate the connection between real estate markets and banking stability. This paper proposes three testable hypotheses linking the growth of investment in real estate and the stability of regional commercial banks in China, measured by NPLs. Our empirical results reveal a close connection between the growth of investment in real estate and the NPLs among regional commercial banks, and its sensitivity to real estate market cycles. When real estate market activity declines, our results suggest, regional commercial banks can find themselves in trouble if they have significant exposure to one type of (real estate) asset. In addition, we find that regional bank competition plays a critical role in defining the relationship between bank stability and real estate investment activity. ARTICLE HISTORY

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Section: Literature Review and Hypothesis Developmentsupporting

confidence: 59%

Real estate investments and financial stability: evidence from regional commercial banks in China

Zhang

Cai

Liu

et al. 2016

The European Journal of Finance

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“…Paradoxically, higher capital ratios are associated with reduced risk, as these banks have less incentive to engage in speculative activities. Neyapti and Nergiz Dincer (2014) further support this, emphasizing the role of legal quality in reducing non-performing loans and promoting efficient resource allocation. Additionally, the impact of bank capital on profitability and risk is contingent on financial regulations.…”

Section: The Impact Of Capital Requirements On Banking Performancementioning

confidence: 70%

The Impact of Risk Taking and Institutional Quality on MENA Region Banking Performance

El Hokayem

2024

IBR

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This study analyzes banking profitability by examining the impact of bank risk taking and institutional quality on the performance of banks operating in the MENA region between 1999 and 2021. Using the generalized method of moments (GMM) panel data estimator, we identify that banking performance is influenced by specific-bank variables, country-level macroeconomic variables, and the quality of institutions. Our findings demonstrate that an increase in the capital requirement ratio and banks' size has a positive impact on the Return on Assets ratio (ROA), while the Non-Performing Loans to Gross Loans ratio (NPL) and Liquidity (LIQ) have a negative effect on banking performance. It is evident that banks under study expand their interest rates in line with economic growth and high inflation rates, negatively influencing banking performance. Additionally, we find that control of corruption and political stability leads to an increase in banking profitability, whereas the rule of law negatively affects banking profitability.

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“…Partially contrary to this, Căpraru and Ihnatov (2014) analyze the main determinants of bank profitability in Central Eastern European countries and find that higher capital adequacy (an element emphasized in the recent regulatory framework) results in higher bank profitability. Bouheni et al (2014), Neyapti andDincer (2014), andOzkan et al(2014) conclude the same, proving that supervision and regulation improve bank profitability. In contrast, Chortareas et al (2012) examine the dynamics between key supervisory and regulatory policies.…”

Section: Literature Reviewmentioning

confidence: 73%

Size matters: analyzing bank profitability and efficiency under the Basel III framework

Gržeta

Žiković

2023

Financ Innov

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The latest regulatory framework, which has been introduced globally in the form of Basel III, and its implementation in the legislation of the member states of the European Union has generated much interest in the impact of regulation on the efficiency and profitability of banks. This study aims to examine the impact of the introduction of two major regulatory changes (Basel II and Basel III) on bank performance, in terms of bank size and bank-specific and macroeconomic variables. A two-stage empirical analysis was conducted on a sample of 433 European commercial banks over the 2006–2015 period. In the first stage, relative efficiency was calculated using non-parametric data envelopment analysis. In the second stage, the generalized method of moments was used to examine the impact of bank-specific and macroeconomic variables as well as regulation on bank performance, that is, profitability and efficiency. Considering bank size, the results show a diverse impact of regulation on bank performance. Regarding large- and medium-sized banks, regulation positively affects both efficiency and profitability, whereas, for small banks, it negatively affects performance. The results suggest that larger banks have skillfully adapted to the new regulatory environment. In contrast, small banks have problems with profitability and efficiency because the new regulatory framework has imposed additional administrative and regulatory burdens. This could result in future failure or mergers with larger banks, resulting in a higher concentration in the banking sector and increased systemic risk. Our results strongly suggest that regulation should not be implemented equally for all banks; that is, on a one size fits all terms. A distinction between small and large banks when introducing new regulatory frameworks should be made if a reasonable level of competition is to be preserved.

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Macroeconomic Impact of Bank Regulation and Supervision: A Cross-Country Investigation

Cited by 23 publications

References 27 publications

Real estate investments and financial stability: evidence from regional commercial banks in China

Real estate investments and financial stability: evidence from regional commercial banks in China

The Impact of Risk Taking and Institutional Quality on MENA Region Banking Performance

Size matters: analyzing bank profitability and efficiency under the Basel III framework

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