The effect of political institutions on the interplay between banking regulation and banks’ risk

The Impact of Risk Taking and Institutional Quality on MENA Region Banking Performance

“…Moreover, in Model IV, a high level of rule of law (RLAW) captures a negative and significant relationship with banks' profitability (ROA), indicating that challenges in implementing the rule of law in the MENA region significantly impact the banking sector's financial performance. This contradicts with the results of (Dutra, Teixeira and Dias, 2023;and Bouteska, Büyükoglu and Halil Eksi, 2023), where regulations positively affected banking performance. The negative impact in our results is attributed to the ineffective implementation of a high level of rule of law in the MENA region, leading to increased operational costs and reduced profitability.…”

“…Regarding the rule of law, Dutra, Teixeira, and Dias (2023) investigate how banking regulation influences banks' risk through the lens of investors' protection, considering three fundamental factors: activity restrictions, capital stringency, and supervisory power. The authors' findings, derived from panel data covering a sample of 535 banks from OECD countries during the period 2004-2016, indicate that investor protection enhances the positive impact of activity restrictions and capital requirements on bank risk.…”