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Empirical Assessment on Financial Regulations and Banking Sector Performance

Abstract

This study examines financial regulation and banking sector performance in Nigeria. Specifically, the study determines the impact of reforms on banking sector performance and also assesses the nexus between capital adequacy and banking sector performance. Time series data for the period 1993 to 2014 was used. As an analytical tool, the study uses unit root test to determine the stationary state of the variables. We also employed the Johansson co-integration and error correction model (ECM) statistical techniques to establish both short-run and long-run dynamic relationships between the endogenous and exogenous variables. The empirical findings indicate that financial regulation significantly impacts the banking sector performance while financial regulation has both short-run and long-run dynamic relationships with the banking sector performance in Nigeria. It was found that the four-period lag of capital adequacy negatively affects banking sector performance and is not statistically significant. The paper suggests that the Central Bank of Nigeria (CBN) should continually make public the impacts that the various financial regulations and reforms have on the performance of Nigerian banks. Majority of the policies on financial regulation by the apex bank (CBN) need to be long-run which can enable confidence of stakeholders, shareholders and the general public in the Nigerian banking industry when critically evaluated.

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Solvency and Liquidity Level Trade-off: Does it Exist in Croatian Banking Sector?

Abstract

We focus on 32 Croatian banks in the period 2002-2010 in order to investigate the solvency-liquidity nexus. Dynamic panel data analysis is applied on two basic models in which current liquidity ratio and equity to assets ratio are set as dependent variables, interchangeably, and other explanatory variables employed to capture the effect of bank size, profitability and asset quality as well as macroeconomic environment. We found two-way positive relationship between bank solvency and liquidity. However, bank size plays an important role in the capital and liquidity management, and trade-off between the solvency and liquidity level is found for the larger banks. Therefore, policymakers should take into consideration capital and liquidity interdependence, as well as the bank size effect when designing capital and liquidity requirements in order to downsize the regulatory burden for smaller banks, and increase them for larger banks. Namely, larger banks tend to minimize regulatory costs by avoiding simultaneous increase of liquidity and solvency. Small banks do exactly the opposite and stock both, capital and liquidity, what potentially makes their funds allocation sub-optimal, from their own as well as social point of view. Altogether, the paper contributes to scarce empirical evidence regarding bank solvency and liquidity interdependence, particularly when the post-transitional banking sectors are taken into consideration. It adds to knowledge on bank financial management in praxis, and bank managers and prudential authorities might find it relevant for their policies design and implementation.

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New Evidence on Efficiency in Southern European Banking

New Evidence on Efficiency in Southern European Banking

This paper explores the issue of efficiency in Southern European banking by applying the Fourier functional form and the stochastic cost frontier approach in calculating inefficiencies for a large sample of Southern European banks between 1997 and 2003. The findings suggest that the largest sized banks are generally the least efficient, while the smallest sized banks are the most efficient. The strongest economies of scale are displayed by Spanish banks, while the weakest economies of scale are reported by Greek banks. The findings suggest that medium-sized banks report the strongest economies of scale, and the largest and smallest banks weaker economies of scale (ranging between 3,5% and 7%). Therefore, the notion that economies of scale increase with bank size cannot be confirmed. The impact of technical change in reducing bank costs (generally about 3% and 4% per annum) appears to systematically increase with bank size. The largest banks reap greater benefits from technical change. Overall, the results indicate that the largest banks in the sample enjoy greater benefits from technical progress, although they do not have scale economy and efficiency advantages over smaller banks.

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Capitalization and bank performance: Evidence from Nigerian Banking Sector

Abstract

The study examines the impact of capitalization on bank performance of some selected commercial banks in Nigeria using econometric analysis on annual time series data of ten banks over the period of 2006 to 2014. The results from a Levin, Lin & Chu unit root test show that all the variables were non-stationary. The results from a Panel Least Square (PLS) estimate found that operating expenses, bank size and bank loan are negatively related to profitability but only bank loans are significant. On the other hand, bank deposit and bank liquidity are positively related to profitability but not significant. This conclusion has important policy implications for emerging countries like Nigeria as it suggests that capitalisation and total assets of a bank should be periodically evaluated. The regulatory authorities will therefore need to put in place appropriate machinery that will address issues of bank liquidity and assure asset quality in the industry.

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Best Practice of Selecting Strategic International Agency Banking

Abstract

International agency or correspondent banking (corbanking) is cross border bank to bank businesses that agent banks act on behalf of principals. Despite drastic changing banking environment, corbanking remains from doing business by mainly fee based, packaging reciprocal products and services, and so on. Corbanking is therefore identified as an alternative to serve clients worldwide in a strategic low cost way. Best practice to identify for entering corbanking relationships and selecting their correspondents are the themes of this paper, which are useful for financial institutions to make strategic and operational decisions for their expansion. Eighteen determinant factors to establish corbanking relationships and nineteen selection criteria of correspondents were identified through literature reviews, case studies, and exploratory surveys. Empirical surveys were conducted on 43 sample banks in Australia, which were further categorized in ten bank groups. Analytical methods included descriptive statistics and stepwise least square regression with case studies. The findings were: the most significant factor for financial institutions to enter correspondent banking systems was the bank size and a lower ranking factor was location not physically present, whereas there was different consensus for different bank groups about the selection criteria for agents overseas.

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An Empirical Investigation into the Effect of Explicit Deposit Insurance and Design on the Liability Structure of Banks

Abstract

This paper provides an insight into the behaviour of the liability side of bank balance sheet in response to explicit deposit insurance. It is an empirical investigation into the choice of a rational bank maximizing its bank value in terms of deposit and non-deposit liabilities after the implementation of explicit deposit insurance. The paper tests how banks' liabilities are affected because of the safety net and its design. Banks lower their leverage ratio as a response to the explicit deposit insurance. The paper finds evidence of depositor shifting funds between the types of deposits in the bank as a result of the explicit deposit insurance. It provides evidence of the importance of setting the right coverage in order to prevent the adverse effects that deposit insurance induces. It studies how the safety net design features affect the bank liability structure. The study finds that besides the explicit deposit insurance, the bank liability structure is affected by factors like tax expense, bank size, overheads, and dividend payout.

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Determinants Of European Banks' Capital Adequacy / Determinanty Adekwatności Kapitałowej Banków Europejskich

Abstract

This paper examines the factors affecting the Common Equity Tier 1 Ratio (CET1), which is a measure of the relationship between core capital and the risk-weighted assets of banks. The research is based on a randomly selected sample from the group of banks examined by the European Central Bank authorities. The ECB conducted stress tests assessing the CET1 Ratio with respect to the Basel III regulations. The findings confirm the hypothesis about the impact of bank size and the risk indicators (risk-weight assets to total assets ratio and the share of loans in total assets) on banks’ capital adequacy. They also confirm strong effect of competitive pressure and the negative correlation between the CET1 Ratio and the share of deposits in non-equity liabilities, which may be explained by the existence of the deposit insurance system. Finally the paper presents the limitations of the study and conclusions regarding possible further research in this subject area.

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Identification of Financial and Macroeconomic Shocks in a Var Model of the Polish Economy. A Stability Analysis

., … Wrobel, E. (2016). Monetary policy transmission mechanism in Poland. What do we know in 2015? National Bank of Poland Working Papers (249). Kilian, L., & Lutkepohl, H. (2017). Structural vector autoregressive analysis. (Themes in Modern Econometrics). Cambridge: Cambridge University Press. doi: 10.1017/9781108164818 Kishan, R. P., & Opiela, T. P. (2000). Bank size, bank capital, and the bank lending channel. Journal of Money, Credit and Banking, 32(1), 121-141. https://doi.org/10.2307/2601095 Kremer, M. (2015

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Bank Capital and Profitability: An Empirical Study of South African Commercial Banks

relationship between capital and earnings in banking , “Journal of Money, Credit and Banking”, Vol. 27 (2), pp. 432–456. Berger, A.N., Black, L. (2011), Bank size, lending technologies and small business finance , Journal of Banking and Finance, No. 35, pp. 724–735. Berger, A.N., Hanweck, G.A., Humphrey, D.B. (1987), Competitive Viability in Banking: Scale, Scope and Product Mix Economies , “Journal of Monetary Economics”, No. 20m, pp. 501–520. Berger, A.N., Herring, R.J., Szego, G.P. (1995), The role of capital in financial institutions , “Journal of

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Perspectives on Monetary Policy and Cost of Capital: Evidence from Turkey

, 221–256. 27. Kashyap, A.K., Stein, J.C. (1995b). The impact of monetary policy on bank balance sheets. Carnegie-Rochester Series on Public Policy 42, 142–196. 28. Kashyap, A., Stein, J.(2000). What Do One Million Observations on Banks Have to Say About the Transmission of Monetary Policy. American Economic Review , 80, 1183–200. 29. Kishyan, R.P., Opiela, T.P.(2000). Banks size, bank capital, and the bank lending channel. Journal of Money, Credit, and Banking , 32 (1), 121–141. 30. Küçük, H., Özlü, P., Talaslı, A., Ünalmış, D. & Yüksel, C

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