How bank capital buffers vary across countries: The influence of cost of deposits, market power and bank regulation

Fonseca, Ana Rosa; González, Francisco

doi:10.1016/j.jbankfin.2009.09.020

Cited by 202 publications

(175 citation statements)

References 36 publications

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“…They argue that equity appears expensive because debt is subsidized by tax-payer-backed deposit insurance and bailout schemes, and suggest that maintaining higher equity ratios wouldn't increase credit cost. Fonseca and González (2010) find that bank market power and capital levels have a positive association. Contributing to this latter literature, we examine whether bank cost efficiency impacts bank capital.…”

Section: Introductionmentioning

confidence: 83%

Impact of Cost Efficiency on Bank Capital and the Cost of Financial Intermediation: Evidence from BRICS Countries

Rahman

Ashraf

Zheng

et al. 2017

IJFS

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Over last two decades, emerging and developing nations have desperately endeavored for efficient banking sectors. In this study, we argue that bank efficiency generates incentives that can impact banks' capital holdings and the cost of financial intermediation. Analyzing a panel dataset of 1190 banks from BRICS (Brazil, Russia, India, China, South Africa) countries over the period 2007-2015, we find robust evidence that more efficient banks hold higher capital and charge lower financial intermediation costs. In an extended sample over the period 2000-2015, we observe that cost efficiency had a marginal positive impact on bank capital during the global financial crisis of [2007][2008][2009]. We also observe that on average, banks increased the cost of financial intermediation during the crisis, however, greater efficiency helped banks to not charge higher intermediation costs. Our results imply the beneficial impact of bank efficiency for bank stability and real economy.

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Section: Introductionmentioning

confidence: 83%

Impact of Cost Efficiency on Bank Capital and the Cost of Financial Intermediation: Evidence from BRICS Countries

Rahman

Ashraf

Zheng

et al. 2017

IJFS

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“…In fact, various studies have investigated the impact of market power on various aspects of banking activities, such as interest margin (Maudos and De-Gevara, 2004), financial stability (Jimnez and Saurina, 2004;Agoraki et al, 2011), banking efficiency (Delis and Tsiones, 2009;Ariss, 2010) and banking regulation (Beck et al, 2006;Fonseca and González, 2010;Carba-Valverde and Fernandez, 2007) highlighted the relationship between market power and diversification of banking activities. The study explains how banking market power increases when the bank diversifies its investment in non-traditional banking activities.…”

Section: The Literature Reviewmentioning

confidence: 99%

The Effect of Diversification of Banking Products on the Relationship between Market Power and Financial Stability

Mensi¹,

Labidi²

2015

American Journal of Economics and Business Administration

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Abstract:In the context of financial liberalization, increased competition has spurred financial institutions to develop new products and new activities in order to meet demand, market development and increased competitiveness. This has made the relationship between market structure and financial stability more complicated and its study through the channel of diversification remains an unexplored area. The purpose of this paper is to test the interaction between market power, diversification and financial (in) stability. To this end, we examine a sample of 18 countries in the MENA region and 157 commercial banks during the period 2000-2013. Supporting the "competition-instability" hypothesis, our results revealed that low market power banks in the MENA region are less robust and more unstable when they less or poorly diversify their activities. Moreover, financial instability in this sector may result from a fierce competition among banks born from the desire to distinguish themselves by offering various nontraditional products, for which banks lack the experience to control its risks.

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“…In line with this, the 1988 Basel Accord emphasizes on the management of capital as a tool to measure banks' insolvency risk. In the event of financial distress, banks with higher buffer can use the excess capital to cover for losses and overcome the difficulties in raising fresh capital (Fonseca and Gonzalez, 2010). Banks also hold excess capital in order not to incur the costs associated with market discipline (Flannery and Rangan, 2008;Nier and Baumann, 2006;Wu and Bowe, 2010).…”

Section: Dependent Variablementioning

confidence: 99%

Market Discipline and Bank Risk Taking: Evidence from the East Asian Banking Sector

Hamid

Yunus

2017

SSRN Journal

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The third pillar of the Basel II highlights the role of market discipline in easing the existing pressure on traditional monitoring measures like capital requirement and government supervision. This study test the effectiveness of market discipline in inducing prudential risk management practices among the East Asian banks over the 1995 to 2005 period. Market discipline is measured using information disclosure and interbank deposit holdings. We find that only the latter is an effective market discipline tool. However, the former becomes effective when market concentration is higher. We find that government owned, foreign owned and recapilatised banks are subject to market disciplining when disclosure in taken account but the opposite is true when interbank deposits is taken into account. Finally, we find that banks that disclose more risk related information hold more capital against their non-performing loan. The implications of the findings are discussed.

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How bank capital buffers vary across countries: The influence of cost of deposits, market power and bank regulation

Cited by 202 publications

References 36 publications

Impact of Cost Efficiency on Bank Capital and the Cost of Financial Intermediation: Evidence from BRICS Countries

Impact of Cost Efficiency on Bank Capital and the Cost of Financial Intermediation: Evidence from BRICS Countries

The Effect of Diversification of Banking Products on the Relationship between Market Power and Financial Stability

Market Discipline and Bank Risk Taking: Evidence from the East Asian Banking Sector

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