Assessing the Cost of Financial Regulation

Elliott, Douglas J.; Salloy, Suzanne; Santos, Andre

doi:10.2139/ssrn.2164587

Cited by 3 publications

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“…Slovik and Courn ede (2011) have opined that the compliance of banks to the increased regulatory capital standard of Basel III will increase the lending spreads of banks. Elliott and Santos (2012) have opined that banks in the USA, Europe, and Japan are likely to increase the lending margin during the Basel III regime. From a sample of 2000-2014, Rahman et al (2018) have observed a positive relationship between capital regulation and cost of financial intermediation in the AJEB Bangladesh banking industry.…”

Section: Capital Regulation and Cost Of Financial Intermediationmentioning

confidence: 99%

Market competition, capital regulation and cost of financial intermediation: an empirical study on the banking sector of Bangladesh

Mia

2022

AJEB

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PurposeThis study aims to examine the impact of market competition, and capital regulation on the cost of financial intermediation of banks of the Bangladesh banking industry.Design/methodology/approachThis study has used a balanced panel dataset comprised of 340 firm-year observations for 34 commercial banks in the Bangladesh banking industry from 2011 to 2020. The Prais Winsten panel estimator has been used to assess the impact of market competition and capital regulation on the cost of financial intermediation of banks.FindingsBased on the regression results, this study has documented that greater market competition results in a lower cost of financial intermediation for banks. Similarly, an increase in the regulatory capital of banks increases the cost of financial intermediation of banks. The main findings of this study are found robust by using alternative proxies for the cost of financial intermediation, market competition and capital regulation. The regression results also suggest that private commercial banks tend to have a higher cost of financial intermediation than state-owned commercial banks.Research limitations/implicationsThe regulatory reforms should aim to foster sustainable and optimal market competition for the Bangladesh banking industry to regulate the market power of banks to reduce the cost of financial intermediation. The regulatory authority of Bangladesh should find the optimal policy measures for implementing the capital regulation in the banking industry which would reduce the cost of financial intermediation margin of banks.Originality/valueUnlike previous studies which have used structural market competition measures, this study has used non-structural market competition measures to assess the relationship between market competition and cost of financial intermediation in the Bangladesh banking industry.

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Section: Capital Regulation and Cost Of Financial Intermediationmentioning

confidence: 99%

Market competition, capital regulation and cost of financial intermediation: an empirical study on the banking sector of Bangladesh

Mia

2022

AJEB

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In Praise of (Some) Red Tape: A New Approach to Regulation

Menzies¹,

Dixon

Rimmer

2016

Economic Record

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The costs of removing red tape include a lower chance of detecting recession‐generating flaws in the financial system. What we call independent dimensions of regulation (IDRs) operate more or less independently from other groupings. If an IDR's optimality is unknown, it may be risky to remove. Uncertainty thus implies that (some) red tape – a small amount of overregulation – is justified, in contrast to the Brainard principle that uncertainty dictates less policy activism. The long‐run Gross Domestic Product (GDP) benefit of a 1 per cent improvement in financial services productivity is 0.06 per cent in our computable general equilibrium model. These relatively modest gains reinforce our conclusion.

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Regulation and De-Risking: Theoretical and Empirical Insights

Haar

Gregoriou

2023

Risks

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The purpose of the Bank for International Settlements regulatory agenda, as implemented by financial regulators globally, has been to make banks safer and reduce the likelihood of systemic events. Using an original model of bank profit maximisation under a regulatory constraint, we statistically examine how market risk exposure has interacted with financial performance and capital structure, to see if the Basel regulatory agenda concerning the quantity, quality and liquidity of capital, has prompted changes in banking behaviour as measured by exposure to market risk. Breaking new ground, we empirically explore how the regulatory agenda has affected the largest banks. We analyse if the regulatory agenda has succeeded in aligning the cost of capital with their exposure to market risk, measured by Value at Risk; or if regulations have induced changes to banking activities. We find rather than regulation inducing changes to the rate at which unchanged risk exposure is capitalised; it leads to changes in the nature of exposures. Risk has declined along with financial performance while the cost of capital is largely unchanged. A consequence of regulation may be to encourage the migration of riskier activities to organisations where it may be borne more cheaply.

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Assessing the Cost of Financial Regulation

Cited by 3 publications

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Market competition, capital regulation and cost of financial intermediation: an empirical study on the banking sector of Bangladesh

Market competition, capital regulation and cost of financial intermediation: an empirical study on the banking sector of Bangladesh

In Praise of (Some) Red Tape: A New Approach to Regulation

Regulation and De-Risking: Theoretical and Empirical Insights

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