Risk and Regulation for the Soundest Banking Systems in the World
Keywords:
bank risk indicators; sound financial systems; global financial crisisAbstract
Objectives The objectives of this paper were to analyse the different risk measures to determine the best measure of bank risk to use in the quantile regression between risk and regulation; determine the best proxies for bank regulation from the World Bank survey on banking regulation and evaluate the nature of the relationship between bank risk and bank regulation variables Prior Work this study built on the work done in 2012 by Klomp and De Haan and added a new focus study to their methodological approach Approach A factor analysis was used to explain variability amongst the variables in the risk indicators of the different countries. After that, a principal component analysis was performed with the regulation data of the sample. Finally, a multilevel quantile regression function was used to determine the relationship between strict regulation and risks for the identified banks in different countries. Results The results indicated that bank regulation and supervision mainly affect high-risk banks which are in the 0.75 and 0.95 quantiles. This finding was also similar to what de Haan and Klomp discovered in their results. Implications The study highlighted the lack of literature for African studies in the bank risk and regulation topic post the 2008 global financial crisis. Value The paper indicated that more bank risk that focuses on capital regulatory requirements need to be implemented to assist in the reduction of possible banks risk.
References
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Alali, F. & Romero, S. (2013). Characteristics of failed US commercial banks: an exploratory study. Accounting & Finance, 53., 4., 1149-1174.
Altan, M., Yusufazari, H. & Bedük, A. (2014). Performance analysis of banks in Turkey using CAMEL approach. In Proceedings of International Academic Conferences (Vol. 2). International Institute of Social and Economic Sciences.
Arabi, K. A. M. (2013). Predicting banks' failure: The case of banking sector in Sudan for the period (2002-2009). Journal of Business Studies Quarterly, 4., 3., 160-172.
Asongu, S., Batuo, M. & Mlambo, K. (2018). Linkages between financial development, financial instability, financial liberalisation and economic growth in Africa. Research in International Business and Finance, 45., 168-179.
Azar, A. T. & Vaidyanathan, S. (Eds.). (2015). Computational intelligence applications in modeling and control. Basel: Springer International Publishing.
Aydoğan, B., Baklaci, H., Erol, C., F. & Tunç, G. (2014). Performance comparison of Islamic (participation) banks and commercial banks in Turkish banking sector. EuroMed Journal of Business, 9., 2., 114-128.
Bhatt, R. K. 2011. Recent global recession and Indian economy: an analysis. International Journal of Trade, Economics and Finance, 2., 3., 212-217.
Celik Girgin, S., Nguyen, H. O. & Karlis, T. (2017). How Global Financial Crisis affected the financial development and economic growth? Retrieved from https://papers.ssrn.com Date of Access: 07.07.2019.
Chen, F. C. 2014. The relationship between camel and Taiwanese banks performance: SBM network DEA approach. Actual Problems of Economics, 4., 534-543.
Dang, U. 2011. The CAMEL Rating System in Banking Supervision: A Case Study. Arcada University of Applied Sciences. International Business.
de Haan, J. &. Klomp, J. 2014. Bank regulation, the quality of institutions, and banking risk in emerging and developing countries: an empirical analysis. Emerging Markets Finance and Trade, 50., 6., 19-40.
Drezner, D. W. & McNamara, K. R. (2013). International political economy, global financial orders and the 2008 financial crisis. Perspectives on Politics, 11., 1., 155-166.
Duraj, B. & Shkurti, R. (2016). The Assessment of the Financial Soundness of The Banking Sectors In Balkan Countries Using" Early Warning Indicators"-A Comparative Study With Policy Implications. CEA Journal of Economics, 5., 1., 33-48.
Fredrick, O. (2013). The impact of credit risk management on financial performance of commercial banks in Kenya. DBA Africa Management Review, 3., 1., 22-37.
Fratzscher, M., König, P. J., & Lambert, C. (2016). Credit provision and banking stability after the Great Financial Crisis: The role of bank regulation and the quality of governance. Journal of international money and finance, 66., 113-135.
Hasan, I., Liu, L. & Zhang, G. (2016). The determinants of global bank credit-default-swap spreads. Journal of Financial Services Research, 50., 3., 275-309.
Hashim, H. A. & Muhmad, S. N. (2015). Using the camel framework in assessing bank performance in Malaysia. International Journal of Economics, Management and Accounting, 23., 1., 109-127.
Ifeacho, C. & Ngalawa, H. (2014). Performance of the South African banking sector since 1994. Journal of Applied Business Research, 30., 4., 1183-1196.
International Business Machines. 2019. KMO and Bartlett's Test. Retrieved from https://www.ibm.com. Date of Access: 02.08.2020.
Kanagaretnam, K., Zhang, G. & Zhang, S. B. (2016). CDS pricing and accounting disclosures: Evidence from US bank holding corporations around the recent financial crisis. Journal of Financial Stability, 22., 33-44.
Kumar, V. & Sayani, H. (2015). Application of CAMEL model on the GCC Islamic Banks: 2008-2014. Journal of Islamic Banking and Finance, 3., 2., 1-14.
Kupiec, P., Lee, Y. & Rosenfeld, C. (2017). Does bank supervision impact bank loan growth?. Journal of Financial Stability, 28., 29-48.
Lall, R. 2012. From failure to failure: The politics of international banking regulation. Review of International Political Economy, 19., 4., 609-638.
Maria-Daciana, R. C. & Nicolae, B. (2014). Study regarding the financial stability of commercial banks listed on Bucharest Stock Exchange of CAMELS rating outlook. Journal of International Studies, 7., 3., 133-143.
Mayes, D. G. & Stremmel, H. (2012). The effectiveness of capital adequacy measures in predicting bank distress. 2013 Financial Markets & Corporate Governance Conference, 1-46.
Pintea, M. & Raţiu, I. P. & Thalassinos, I. E. (2015). The Recent Financial Crisis and Its Impact on the Performance Indicators of Selected Countries during the Crisis Period: A Reply. International Journal of Economics and Business Administration, 3., 1., 3-20.
Roman, A. & Şargu, A. C. (2013). Analysing the financial soundness of the commercial banks in Romania: an approach based on the camels framework. Procedia economics and finance, 6., 703-712.
Sayed, G. J. & Sayed, N. S. (2013). Comparative analysis of four private sector banks as per CAMEL rating. Business Perspectives and Research, 1., 2., 31-46.
Schwarcz, S. L. (2015). Securitization and post-crisis financial regulation. Cornell Law Review Online, 101., 115-139.
Shiller, R. J. (2012). The subprime solution: How today's global financial crisis happened, and what to do about it. New Jersey, New York: Princeton University Press.
Sironi, A. (2018). The Evolution of Banking Regulation Since the Financial Crisis: A Critical Assessment. Baffi CarefinCentre Research Paper, 103., 1-61.
World Bank. (2019). Bank Regulation and Supervision Survey. Retrieved from https://datacatalog.worldbank.org Date of Access: 10.21.2019.
World Economic Forum. 2019. The Global Competitiveness Report 2018. Retrieved from http://reports.weforum.org Date 07.07.2019.
Published
2020-08-28
How to Cite
Nasa, T. S., Mokatsanyane, D., & Dickason-Koekemoer, Z. (2020). Risk and Regulation for the Soundest Banking Systems in the World: Array. Acta Universitatis Danubius. Œconomica, 16(5). Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/409
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Financial Economics
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