Theories of bank behavior under capital regulation

VanHoose, David D.

doi:10.1016/j.jbankfin.2007.01.015

Cited by 313 publications

(125 citation statements)

References 56 publications

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“…With regard to the latter, Berger and DeYoung (1997) argue that loan quality and efficiency can be related in several ways through the "bad luck", "bad management", "skimping" and "moral hazard" hypotheses. In relation to (ii), VanHoose (2007) argues that stricter capital standards may influence banks in substituting loans with alternative forms of assets. Obviously, this could influence their cost and profit efficiency, because different asset portfolios will generate different returns, and require different resources to be managed; furthermore, despite potential diversification benefits, there is the question of whether banks can manage efficiently a portfolio of different assets.…”

Section: Theoretical Background and Discussionmentioning

confidence: 99%

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The impact of banking regulations on banks' cost and profit efficiency: Cross-country evidence

Pasiouras

Tanna

Zopounidis

2009

International Review of Financial Analysis

304

241

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This paper uses stochastic frontier analysis to provide international evidence on the impact of the regulatory and supervision framework on bank efficiency. Our dataset consists of 2,853 observations from 615 publicly quoted commercial banks operating in 74 countries during the period 2000-2004. We investigate the impact of regulations related to the three pillars of Basel II (i.e. capital adequacy requirements, official supervisory power, and market discipline mechanisms), as well as restrictions on bank activities, on cost and profit efficiency of banks, while controlling for other countryspecific characteristics. Our results suggest that banking regulations that enhance market discipline and empower the supervisory power of the authorities increase both cost and profit efficiency of banks. In contrast, stricter capital requirements improve cost efficiency but reduce profit efficiency, while restrictions on bank activities have the opposite effect, reducing cost efficiency but improving profit efficiency.

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Section: Theoretical Background and Discussionmentioning

confidence: 99%

“…loans with other forms of financial assets to meet stricter capital standards (VanHoose, 2007). To the extent that banks switch towards less risky assets, the riskreturn hypothesis suggests lower profit efficiency.…”

Section: Determinants Of Inefficiencymentioning

confidence: 99%

The impact of banking regulations on banks' cost and profit efficiency: Cross-country evidence

Pasiouras

Tanna

Zopounidis

2009

International Review of Financial Analysis

304

241

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“…In summary, capitalized assets banks are considering low funding costs and subsequently high profits. However, Results of Wahyu et al (2012) (for Islamic banks)and others such as Staikouraset al (2008) and Vanhoose (2007) (for conventional banks) report a negative relationship between the ratio of capitalization and profit efficiency. As a result, our hypothesis H2 is not checked because the banks with high capitalization ratios are more efficient in terms of profit while this relationship is not checked for cost efficiency.…”

Section: 3-regression Of the Determinants Of Efficiencymentioning

confidence: 90%

The Determinants of Cost/Profit Efficiency of Islamic Banks Before, During and After the Subprime Crisis Using SFA Approach

Mghaieth

Khanchel

2015

ijafr

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In this paper we estimate the determinants of cost and profit efficiency of Islamic banks using the stochastic frontier approach SFA. We use 62 Islamic banks in sixteen countries of the MENA and South-East Asia regions during the period [2004][2005][2006][2007][2008][2009][2010]. We compare the efficiency between Islamic banks during the subprime crisis phases. Moreover, we examine the variables specific to the banks which can explain the sources of inefficiency and those let us decline the scores of cost and profit efficiency on a specific number of variables (total assets, capital adequacy, profitability, credit risk, operational costs). Results reveal that, Islamic banks in our study are more efficient in the generation of the profits rather than in the control of the costs. Thus, only the total assets and the operational costs represent the determinants of cost efficiency of the Islamic banks. Finally, for the profit efficiency our results indicate that the Islamic banks with high equities and high ratio of profitability are efficient in terms of profit.

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“…A conflict of interest may arise between the shareholders and the bank managers, either due to their different risk profiles or due to the shareholders' difficulty in verifying whether the manager has acted in his interest or has made an "adverse selection" (Eisenhardt, 1989;VanHoose, 2007). This may contribute to procyclicality when: (a) managers take excessive risks in search for yield because of high incentives from the shareholders (e.g., high bonuses) or because of decreasing influence of shareholders on the behavior of the banks' managers, which can lead to systemic risk and instability; and (b) borrowers underestimate tail risk, retaining in that way the possibility for excess profits, while lenders risk losing their capital (Landau, 2009a).…”

Section: Introductionmentioning

confidence: 99%

Bank procyclicality and output: Issues and policies

Athanasoglou¹,

Daniilidis

Delis

2014

Journal of Economics and Business

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The recent global financial crisis has highlighted the importance of the procyclicality of the financial sector. The procyclicality has transformed banks from mitigation mechanisms to amplifiers of changes in economic activity, potentially affecting financial stability and economic growth. The causes of procyclicality can be attributed to market imperfections and deviations from the efficient market hypothesis, while other factors including the Basel-type regulations, accounting standards and leverage have exacerbated it. Several suggestions have been forwarded to attenuate procyclicality, in the form of rules and discretion. They are presented here according to the factors they aim to alleviate. Some of the suggestions have been adopted under the Basel III framework, which explicitly addresses the procyclicality issue.

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Theories of bank behavior under capital regulation

Cited by 313 publications

References 56 publications

The impact of banking regulations on banks' cost and profit efficiency: Cross-country evidence

The impact of banking regulations on banks' cost and profit efficiency: Cross-country evidence

The Determinants of Cost/Profit Efficiency of Islamic Banks Before, During and After the Subprime Crisis Using SFA Approach

Bank procyclicality and output: Issues and policies

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