Financial Regulation and Bank Performance

Table of Contents

1. Frontmatter

2. Chapter 1. Introduction

   Shaofang Li

   Abstract

   The regulatory changes in the last decade have been investigated and well documented by the regulators. However, less is known about the implementation of the regulatory rule. Even though countries share the same regulations, the implementation across countries may differ. Our focus will therefore be on the implementation of financial regulation and how well the supervisors pursue and implement financial regulation. This study investigates in the impact of the financial regulatory on bank behaviour. In particular, the primary objective is to evaluate the impact of financial regulatory on bank performance in normal times and during the global financial crisis.

3. Chapter 2. Quality of Bank Capital, Competition, and Risk-Taking

   Shaofang Li

   Abstract

   This chapter empirically investigates how bank capital and competitive conditions affect bank risk-taking. Using financial data of 7620 banks on 118 countries from 2001 to 2016, we show that banks with a higher Tier 1 ratio and a lower Tier 2 ratio are lower risk-takers. A bank with greater market power in a banking system tends to reduce its risk-taking activities. Our findings also highlight that the negative relationship between Tier 1 ratio and bank risk are more pronounced in more competitive conditions. During the financial crisis, Tier 1 capital acted as a stable funding source and reduced bank risk, but the evidence on Tier 2 capital shows that a higher Tier 2 ratio results in a higher level of risk and increases bank instability.

4. Chapter 3. Banking Sector Reform, Competition, and Bank Stability

   Shaofang Li

   Abstract

   This study tests the impact of banking sector reform and competition on bank stability based on unbalanced data from 22 transition countries from 1998 to 2016. The initial results not only highlight the positive relationship between market power and bank fragility, but also confirm the positive relationship between bank reform and stability. Our findings also show that both higher activity restrictions and more explicit guidelines for asset diversification increase bank stability, but this positive effect significantly weakens for banks with higher market power. More stringent capital requirements in combination with higher market power increase the risk of bank insolvency.

5. Chapter 4. The Impact of Bank Regulation and Supervision on Competition

   Shaofang Li

   Abstract

   This article empirically investigates the influence of bank regulation and supervision on the competitive landscape in banking systems. Using the information on 23 emerging economies from 1996 to 2016, we confirm that banking systems with fewer activity restrictions and (foreign) bank entry barriers are more competitive. Greater capital strictness and official supervision enhance competition in the banking industry.

6. Chapter 5. Bank Competition, Regulation, and Efficiency

   Shaofang Li

   Abstract

   This study investigates the impact of bank competition and regulation on bank efficiency in the Asia–Pacific region during 2001–2016. The result reveals that market power is positively related to bank efficiency. We also find that stringent activity restrictions, strong official supervisory power, and low capital requirements are associated with high bank efficiency.

7. Chapter 6. Conclusion

   Shaofang Li

   Abstract

   This chapter gives a general discussion on the main findings of this book. The primary objective of this study is to evaluate the impact of financial regulatory on bank performance in normal times and during the global financial crisis. This chapter briefly summarizes the findings in each chapter of the main findings and provides a systematic overview of them.