Journal of Risk and Financial Management

Editorial

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3 pages, 162 KiB

Open AccessEditorial

Editorial for the Special Issue on Commercial Banking

by Christopher Gan

J. Risk Financial Manag. 2020, 13(6), 111; https://doi.org/10.3390/jrfm13060111 - 1 Jun 2020

Viewed by 2074

Abstract

The existence of financial intermediaries is arguably an artifact of information asymmetry. Beyond simple financial transactions, financial intermediation provides a mechanism for information transmission, which can reduce the degree of information asymmetry and consequently increase market efficiency. During the process of information transmission, [...] Read more.

The existence of financial intermediaries is arguably an artifact of information asymmetry. Beyond simple financial transactions, financial intermediation provides a mechanism for information transmission, which can reduce the degree of information asymmetry and consequently increase market efficiency. During the process of information transmission, the bank is able to provide unique services in the production and exchange of information. Therefore, banks have comparative advantages in information production, transmission, and utilisation. In credit provision, it is possible for lenders to make Type I and Type II errors. These types of errors are associated with whether banks decide to lend money to borrowers with low repayment capacity or risk missing out on potentially profitable lending. However, the recent US subprime loan crisis and previous financial crises (such as the Mexican, Argentinian, Chilean and Asian financial crises) show it is possible that banks can make both good and bad lending decisions. Does this mean that banks have lost their comparative advantages in leveraging information asymmetry? This Special Issue includes contribution in empirical methods in banking such risk and bank performance, capital regulation, bank competition and foreign bank entry, bank regulation on bank performance, and capital adequacy and deposit insurance. Full article

(This article belongs to the Special Issue Commercial Banking)

Research

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19 pages, 729 KiB

Open AccessArticle

Greek Banking Sector Stock Reaction to ECB’s Monetary Policy Interventions

by Nikolaos Petrakis, Christos Lemonakis, Christos Floros and Constantin Zopounidis

J. Risk Financial Manag. 2022, 15(10), 448; https://doi.org/10.3390/jrfm15100448 - 3 Oct 2022

Cited by 1 | Viewed by 2574

Abstract

Reacting to extreme uncertainty conditions caused by the global financial crisis, the European Central Bank implemented countercyclical strategy, combining conventional and non-traditional monetary policy tools to stabilize financial markets and euro area economies. We study the impact of the euro area monetary authority [...] Read more.

Reacting to extreme uncertainty conditions caused by the global financial crisis, the European Central Bank implemented countercyclical strategy, combining conventional and non-traditional monetary policy tools to stabilize financial markets and euro area economies. We study the impact of the euro area monetary authority policy interventions on equity returns of four systemic Greek banks for the period January 2007 to August 2018. In the first step, we collect and classify interventions to several categories. Then, an event study analysis is carried out to evaluate cumulative abnormal returns. In the second step, a panel regression analysis is performed to identify Cumulative Abnormal Return (CAR) determinants. Our results suggest that expansionary conventional monetary policy interventions significantly affect equity returns of Greek banking institutions, assisting the regional banking equity stability. On the other hand, the harmful consequences of Greek debt crisis limited the effectiveness of non-standard measures. Full article

(This article belongs to the Special Issue Banking and the Economy)

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30 pages, 929 KiB

Open AccessArticle

Are Incurred Loss Standards Countercyclical? A Case Study Using U.S. Bank Holding Company Data

by Fang Du, Diana Hancock and Alexander H. von Hafften

J. Risk Financial Manag. 2022, 15(3), 111; https://doi.org/10.3390/jrfm15030111 - 28 Feb 2022

Viewed by 2670

Abstract

After the 2008 global financial crisis, U.S. bank holding companies needing to cover larger-than-expected loan losses raised concerns that existing provision accounting may be procyclical. Most related studies have found evidence of procyclicality using either aggregate time-series data or “as-reported” panel data. We [...] Read more.

After the 2008 global financial crisis, U.S. bank holding companies needing to cover larger-than-expected loan losses raised concerns that existing provision accounting may be procyclical. Most related studies have found evidence of procyclicality using either aggregate time-series data or “as-reported” panel data. We test the null hypothesis that provisions were a constant fraction of nonperforming loans across the economic cycle. We create a “forced” panel, which incorporates the entities acquired by each holding company in the quarters prior to their mergers. As in the related literature, we fail to reject the null hypothesis with “as-reported” data; however, we reject the null hypothesis with the “forced” panel. This finding suggests that holding companies built up provisions to some degree during the pre-crisis period to cover larger future losses. These actions reduced capital and likely depressed lending in the pre-crisis period; such countercyclical impacts are consistent with post-crisis macroprudential policies. Full article

(This article belongs to the Special Issue Banking and the Economy)

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19 pages, 429 KiB

Open AccessArticle

Climate Transition Risk and the Impact on Green Bonds

by Yevheniia Antoniuk and Thomas Leirvik

J. Risk Financial Manag. 2021, 14(12), 597; https://doi.org/10.3390/jrfm14120597 - 10 Dec 2021

Cited by 8 | Viewed by 6618

Abstract

The green bond market develops rapidly and aims to contribute to climate mitigation and adaptation significantly. Green bonds as any asset are subject to transition climate risk, namely, regulatory risk. This paper investigates the impact of unexpected political events on the risk and [...] Read more.

The green bond market develops rapidly and aims to contribute to climate mitigation and adaptation significantly. Green bonds as any asset are subject to transition climate risk, namely, regulatory risk. This paper investigates the impact of unexpected political events on the risk and returns of green bonds and their correlation with other assets. We apply a traditional and regression-based event study and find that events related to climate change policy impact green bonds indices. Green bonds indices anticipated the 2015 Paris Agreement on climate change as a favorable event, whereas the 2016 US Presidential Election had a significant negative impact. The negative impact of the US withdrawal from the Paris agreement is more prominent for municipal but not corporate green bonds. All three events also have a similar effect on green bonds performance in the long term. The results imply that, despite the benefits of issuing green bonds, there are substantial risks that are difficult to hedge. This additional risk to green bonds might cause a time-varying premium for green bonds found in previous literature. Full article

(This article belongs to the Special Issue Advances in Banking and Finance)

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18 pages, 1444 KiB

Open AccessArticle

Bank Risk Capital and Its Effectiveness in Selected Euro Area Banking Sectors

by Irena Pyka and Aleksandra Nocoń

J. Risk Financial Manag. 2021, 14(11), 555; https://doi.org/10.3390/jrfm14110555 - 17 Nov 2021

Viewed by 2328

Abstract

Risk capital or capital at risk (CaR) refers to the amount of capital set aside and maintained by banks to cover different types of risk. For banks, it is used as a buffer against claims or expenses in the event that ordinary capital [...] Read more.

Risk capital or capital at risk (CaR) refers to the amount of capital set aside and maintained by banks to cover different types of risk. For banks, it is used as a buffer against claims or expenses in the event that ordinary capital is not enough to cover them. Thereby, risk capital can also be recognized as risk-bearing capital or surplus funds. Risk capital may generate very high costs, but on the other hand it protects against insolvency. That’s why a bank needs to find the ‘Gold mean’—the optimal value of risk capital that will not lower its efficiency, but still ensure financial security. The main objective of the study is identification of interdependencies between bank risk capital and effectiveness of the aggregated Eurozone banking sector and selected national banking sectors of the euro area. The paper tries to answer the research question whether the risk capital supports or lowers banks’ operational effectiveness. The adopted research hypothesis stated that there is a positive correlation between profitability and size of bank risk capital. To verify the hypothesis regression models were used. The results indicate that the size and structure of bank capital impact on the credit institutions’ effectiveness in the analyzed banking sectors, however with different intensity. Thereby, the article fulfils a research gap in the field of research studies that take into account how capital at risk and specific capital adequacy regulations may impact on a bank’s efficiency. Full article

(This article belongs to the Special Issue Banking and the Economy)

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19 pages, 535 KiB

Open AccessArticle

Dynamic Impact of Unconventional Monetary Policy on International REITs

by Hardik A. Marfatia, Rangan Gupta and Keagile Lesame

J. Risk Financial Manag. 2021, 14(9), 429; https://doi.org/10.3390/jrfm14090429 - 8 Sep 2021

Cited by 9 | Viewed by 2769

Abstract

In this paper, we estimate the dynamic impact of unconventional monetary policy in the US on international REITs. Unlike existing studies which are limited to conventional policy tools and undertake a static approach, we use an event study approach and estimate a time-varying [...] Read more.

In this paper, we estimate the dynamic impact of unconventional monetary policy in the US on international REITs. Unlike existing studies which are limited to conventional policy tools and undertake a static approach, we use an event study approach and estimate a time-varying parameter model to investigate the dynamic impact of forward guidance (FG) and large-scale asset purchases (LSAP) shocks on the international REIT returns. We also compare the effects of these unconventional tools with the effects of conventional federal funds rate (FFR) shocks. The results show that the response of international REITs to unconventional policy shocks depends on the time under consideration. FG shocks have greater time-variation in the impact on REIT returns compared to LSAP shocks, particularly with Australia, Belgium, and the US REIT markets. Furthermore, FG shocks broadly have a negative impact on REITs while the results for LSAP effects are mixed. We also find that in most countries, REITs time-varying response of FG shocks is related to changes in gold prices and financial conditions. Full article

(This article belongs to the Special Issue Banking and the Economy)

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36 pages, 3080 KiB

Open AccessArticle

Are Foreign Banks Disadvantaged Vis-À-Vis Domestic Banks in China?

by Li Xian Liu, Fuming Jiang, Milind Sathye and Hongbo Liu

J. Risk Financial Manag. 2021, 14(9), 404; https://doi.org/10.3390/jrfm14090404 - 26 Aug 2021

Cited by 1 | Viewed by 4035

Abstract

Do foreign banks enjoy a competitive edge in the Chinese banking market or are they disadvantaged vis-à-vis domestic banks? This is the question that the present paper seeks to answer. The issue is important since on the one hand, these banks face the [...] Read more.

Do foreign banks enjoy a competitive edge in the Chinese banking market or are they disadvantaged vis-à-vis domestic banks? This is the question that the present paper seeks to answer. The issue is important since on the one hand, these banks face the challenges the liability of foreignness brings, but at the same time, they have bank-specific advantages. We examine this issue in light of the literature of the liability of foreignness. In our path-breaking study, we found that due to the cost of foreignness, foreign banks’ performance was not as good as that of the local banks. Furthermore, despite the same amount of location- and bank-specific advantages, they performed badly as compared to their local counterparts. It was found that the cost of location-based disadvantages outweighed the cost of bank-specific disadvantages for foreign banks, and recent policy changes may help them overcome some of the cost of foreignness. Full article

(This article belongs to the Special Issue Banking and the Economy)

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20 pages, 400 KiB

Open AccessArticle

Measuring Synergies of Banks’ Cross-Border Mergers by Real Options: Case Study of Luminor Group AB

by Andrejs Čirjevskis

J. Risk Financial Manag. 2021, 14(9), 403; https://doi.org/10.3390/jrfm14090403 - 26 Aug 2021

Cited by 2 | Viewed by 4251

Abstract

Applying the real options valuation to measure merger and acquisition (M&A) synergy is highly debatable, with questions arising from the usefulness of this approach in real-world settings. Understanding the full benefits (and possible limits) of real options applications to measure synergy in cross-border [...] Read more.

Applying the real options valuation to measure merger and acquisition (M&A) synergy is highly debatable, with questions arising from the usefulness of this approach in real-world settings. Understanding the full benefits (and possible limits) of real options applications to measure synergy in cross-border merger activities remains a challenge. The main objective of the paper is to explore multiple types of synergies in the recent, highly strategic cross-border merger—the Luminor Group AB deal—and to value those synergies with the real options application. The research found that the sum of values of different types of synergies in M&A deals as the market value added provided by this deal could be valued with real options applications. A real options application may serve as a decision-making tool and at the same time be a useful valuation method of M&A deal synergies. The implications of this paper are twofold. First, the research contributes to corporate financing by providing relevant synergy measurement models in M&A deals. Second, the paper contributes to “grand challenges’’ research topics of international businesses by illustrating how a group of multinational banks solved the problem of income inequality across countries, and balanced inequality within their networks through a cross-border merger. Full article

(This article belongs to the Special Issue Banking and the Economy)

21 pages, 2436 KiB

Open AccessArticle

Improvement of Service Quality in the Supply Chain of Commercial Banks—A Case Study in Vietnam

by Han-Khanh Nguyen and Thuy-Dung Nguyen

J. Risk Financial Manag. 2021, 14(8), 357; https://doi.org/10.3390/jrfm14080357 - 5 Aug 2021

Cited by 2 | Viewed by 4070

Abstract

The outbreak of the Covid-19 pandemic caused a serious impact on the business activities of enterprises and households, affecting the operation of banks around the world, especially for capital mobilization from those with savings deposits at commercial banks. In face of the unpredictable [...] Read more.

The outbreak of the Covid-19 pandemic caused a serious impact on the business activities of enterprises and households, affecting the operation of banks around the world, especially for capital mobilization from those with savings deposits at commercial banks. In face of the unpredictable developments of the pandemic, many services of banks in Vietnam were also affected, so it has been necessary to make a plan to maintain business operations and respond effectively to these difficulties. In this study, the authors used three research models to form a three-dimensional frame of reference (past, present, and future) to identify, analyze, and evaluate the factors affecting the service quality of commercial banks’ savings deposit mobilization, and to suggest solutions that can minimize risks and improve customer satisfaction for savings deposits at commercial banks, improve service quality to avoid potential long-term risks, as well as maintain sustainable growth and social stability in the future. Full article

(This article belongs to the Special Issue Advances in Banking and Finance)

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14 pages, 787 KiB

Open AccessArticle

The Impact of Brand Equity on Conversion Behavior in the Use of Personal Banking Services: Case Study of Commercial Banks in Vietnam

by Thi Thu Cuc Nguyen

J. Risk Financial Manag. 2021, 14(8), 346; https://doi.org/10.3390/jrfm14080346 - 28 Jul 2021

Cited by 1 | Viewed by 3922

Abstract

The brand equity of banks plays a crucial role in determining customer behavior of using their services. The study aims to examine the impact of brand equity on conversion behavior in the use of personal banking services at commercial banks in Vietnam. The [...] Read more.

The brand equity of banks plays a crucial role in determining customer behavior of using their services. The study aims to examine the impact of brand equity on conversion behavior in the use of personal banking services at commercial banks in Vietnam. The paper uses quantitative research methods, through linear SEM (Structural Equation Modelling) analysis, with survey data including 554 samples of individual customers of commercial banks. The study’s findings show that the bank’s brand equity has a negative impact on the behavior of individual customers. In the relationship between these two factors, competitive advertising effectiveness and loyalty of customers act as intermediary factors. On that basis, the study makes a number of recommendations to preclude customers leaving and minimize business losses caused by the conversion of customers’ banks. The findings of this study have shown the importance and impact of brand equity on conversion behavior in the use of personal customer services. These are meaningful contributions both theoretically and practically to help banks get a deeper insight into brand equity and the need to pay attention to building and developing sustainable brand equity for the bank, as well as an important basis for further research. Full article

(This article belongs to the Special Issue Banking and the Economy)

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18 pages, 937 KiB

Open AccessArticle

Evaluating the Unconventional Monetary Policy of the Bank of Japan: A DSGE Approach

by Rui Wang

J. Risk Financial Manag. 2021, 14(6), 253; https://doi.org/10.3390/jrfm14060253 - 7 Jun 2021

Cited by 7 | Viewed by 4087

Abstract

When the nominal interest rate reaches the zero lower bound (ZLB), a conventional monetary policy, namely, the adjustment of short-term interest rate, may become impractical and ineffective for central banks. Therefore, quantitative easing (QE) is one of the few available policy options of [...] Read more.

When the nominal interest rate reaches the zero lower bound (ZLB), a conventional monetary policy, namely, the adjustment of short-term interest rate, may become impractical and ineffective for central banks. Therefore, quantitative easing (QE) is one of the few available policy options of central banks for stimulating the economy and dealing with deflationary pressure. Since February 1999, the Bank of Japan (BoJ) has conducted several unconventional monetary policy programs. Considering the scarce research in this field from a structural macroeconomic model approach, a medium-scale New Keynesian DSGE model with government bonds of different maturities was developed to check the portfolio rebalancing channel of quantitative qualitative easing (QQE) conducted by the BoJ from April 2013 on the basis of the assumption of imperfect asset substitutability. The model was calibrated on the basis of the structure of the Japanese economy in April 2013. The main conclusion is that the BoJ’s asset purchase has a real effect on pushing output and inflation higher, and long-term interest rates lower. Sensitivity simulation analysis shows that, given the same size of asset purchase, the persistence of asset purchase determines the peak effect in the short run. A long-lasting asset purchase can push up inflation higher, and long-term interest rates lower for a relatively longer period, but the long-run effect on output and investment does not have much difference. The policy implication for BoJ is just to announce a long-lasting QE program and make it credible to the market. Full article

(This article belongs to the Special Issue Advances in Banking and Finance)

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22 pages, 1327 KiB

Open AccessArticle

Well-Being Impact on Banking Systems

by Iulia Cristina Iuga and Larisa-Loredana Dragolea

J. Risk Financial Manag. 2021, 14(3), 134; https://doi.org/10.3390/jrfm14030134 - 21 Mar 2021

Cited by 1 | Viewed by 2430

Abstract

The present research focuses on the influence of the well-being indicators, more specifically, the indicators reflecting the life quality on the banking systems evolution from the EU member states. The study offers a unique approach to comparing the two country groups: the eurozone [...] Read more.

The present research focuses on the influence of the well-being indicators, more specifically, the indicators reflecting the life quality on the banking systems evolution from the EU member states. The study offers a unique approach to comparing the two country groups: the eurozone countries and the EU noneuro countries during the 2008–2019 period. The model is estimated with the help of the OLS method by using panel data. The study aims to identify which life quality indicators significantly influence the EU member states’ banking systems evolution and develop models dividing the countries into two groups. Our conclusions show that, among all the determinant factors analysed in this study, household consumption and internet users strongly influence all EU countries’ banking systems. Full article

(This article belongs to the Special Issue Banking and the Economy)

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18 pages, 4081 KiB

Open AccessArticle

Towards Full-Fledged Inflation Targeting Monetary Policy Regime in Mauritius

by Ashwin Madhou, Tayushma Sewak, Imad Moosa, Vikash Ramiah and Florian Gerth

J. Risk Financial Manag. 2021, 14(3), 126; https://doi.org/10.3390/jrfm14030126 - 17 Mar 2021

Cited by 5 | Viewed by 4441

Abstract

An increasing number of emerging and developing countries have adopted or are transitioning towards full-fledged inflation targeting (FFIT) as the main monetary policy framework to anchor inflation. In this paper, we explore the FFIT regime as a means for Mauritius to achieve stable [...] Read more.

An increasing number of emerging and developing countries have adopted or are transitioning towards full-fledged inflation targeting (FFIT) as the main monetary policy framework to anchor inflation. In this paper, we explore the FFIT regime as a means for Mauritius to achieve stable inflation, anchor inflationary expectations and establish credibility in committing monetary policy towards price stability as its primary goal. This paper reviews and highlights issues experienced with the current monetary policy framework and the challenges in transitioning towards FFIT. Given that forecasting is central to FFIT, we develop a practical model-based forecasting and policy analysis system (FPAS) to support transition to FFIT, taking into account structural features and shocks that are specific to the Mauritius economy. Full article

(This article belongs to the Special Issue Advances in Banking and Finance)

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14 pages, 582 KiB

Open AccessArticle

Has the Propensity to Pay Dividends Declined? Evidence from the US Banking Sector

by Shaojie Lai, Qing Wang, Jiangze Du and Shuwen Pi

J. Risk Financial Manag. 2021, 14(3), 103; https://doi.org/10.3390/jrfm14030103 - 5 Mar 2021

Viewed by 2023

Abstract

This article examines the propensity to pay dividends in the U.S banking sector during 1973–2014. Although the propensity to pay dividends has been declining over the 52 years of our sample period, banks are consistently more likely to pay dividends than non-financial firms. [...] Read more.

This article examines the propensity to pay dividends in the U.S banking sector during 1973–2014. Although the propensity to pay dividends has been declining over the 52 years of our sample period, banks are consistently more likely to pay dividends than non-financial firms. Using the coefficients from logit models estimated early in the sample period to forecast the percentage of dividend payers in each subsequent year, we conclude that there has been a decline in the likelihood of paying dividends in the banking sector. However, the decline started from a very high level as compared to that of the non-banking sectors. In addition, the variables taken from the non-financial firm literature do not explain the difference between the actual and expected percentage of dividend payers in the banking sector. We also conduct exploratory analyses with bank-specific variables. Although newly included variables are significantly related to the likelihood of paying dividends, they do not explain the declining propensity to pay dividends in the banking sector. Full article

(This article belongs to the Special Issue Advances in Banking and Finance)

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13 pages, 249 KiB

Open AccessArticle

Bank Characteristics Effect on Capital Structure: Evidence from PMG and CS-ARDL

by Ahmet Erülgen, Husam Rjoub and Ahmet Adalıer

J. Risk Financial Manag. 2020, 13(12), 310; https://doi.org/10.3390/jrfm13120310 - 4 Dec 2020

Cited by 23 | Viewed by 5015

Abstract

The main aim of this paper was to investigate the impact of bank characteristics on capital structure empirically. The study employed a panel data analysis, Pooled Mean Group (PMG) and Cross-Sectionally Augmented Autoregressive Distributed Lag (CS-ARDL) estimators were utilized, for the period spans [...] Read more.

The main aim of this paper was to investigate the impact of bank characteristics on capital structure empirically. The study employed a panel data analysis, Pooled Mean Group (PMG) and Cross-Sectionally Augmented Autoregressive Distributed Lag (CS-ARDL) estimators were utilized, for the period spans between the years 2008 and 2018. Both the borrowing (leverage) ratio and equity ratio used in the analysis cover short-term deposits and long-term deposits as a fundamental determinant variable on the capital structure. The main findings confirm that the deposit ratio has a positive relationship with the size of the bank. In other words, big banks use more foreign sources than small banks to use the tax shield advantage. At the same time, a percentage increase in bank size and liquidity ratio enhance the bank deposit rate by 0.0068% and 0.479%, respectively, in the long-run, while a percentage change in interest income coverage will reduce the bank deposit rate by 0.004% in the long-run. Meanwhile, the significant causal relationship of growth rate with the bank deposit rate could not be established. In addition, the short-run coefficients of the variables reveal that size, interest coverage, and liquidity have a positive and significant causal relationship with bank deposit rate in the short-run. The findings of the study are in line with the results of capital structure theories, especially the hierarchy theory and balancing theory. Full article

(This article belongs to the Special Issue Banking and the Economy)

20 pages, 335 KiB

Open AccessArticle

Empirical Evidence of a Changing Operating Cost Structure and Its Impact on Banks’ Operating Profit: The Case of Germany

by Florian Diener

J. Risk Financial Manag. 2020, 13(10), 247; https://doi.org/10.3390/jrfm13100247 - 19 Oct 2020

Cited by 1 | Viewed by 5728

Abstract

The financial sector is undergoing extensive changes and challenges that affect the entire market and infrastructure of financial service providers. Technological development leads to increased digitalisation and allows new business models to emerge. With regard to the banking sector, it is evident that [...] Read more.

The financial sector is undergoing extensive changes and challenges that affect the entire market and infrastructure of financial service providers. Technological development leads to increased digitalisation and allows new business models to emerge. With regard to the banking sector, it is evident that this sector is characterized by employees and associated services. However, due to changing conditions, a decline in personnel has been recorded for many years. This raises the question as to what extent—based on contrary assumptions of the principle agency theory and the expense preference hypothesis—personnel changes influence the operational success of banks. On this basis, six hypotheses were formulated and tested. The principal component analysis method was applied to prepare the data. Afterwards, the actual analysis was carried out using a mixed method approach. The results on the basis of the years 2013–2017 showed a negative personnel development, which contributed to the improvement of the operating results of banks. Hereby it becomes evident that the business model design of savings and cooperative banks is of secondary importance. Full article

(This article belongs to the Special Issue Banking and the Economy)

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13 pages, 863 KiB

Open AccessArticle

Banking Development and Economy in Greece: Evidence from Regional Data

by Christos Floros

J. Risk Financial Manag. 2020, 13(10), 243; https://doi.org/10.3390/jrfm13100243 - 15 Oct 2020

Cited by 5 | Viewed by 3633

Abstract

This article examines the development of Greek systemic banks for the period 2003–2018, using data such as the ATM network and branches at a regional level. We test the impact of the ATM network and branches on the deposits of Greek commercial banks [...] Read more.

This article examines the development of Greek systemic banks for the period 2003–2018, using data such as the ATM network and branches at a regional level. We test the impact of the ATM network and branches on the deposits of Greek commercial banks as well as the impact of local GDP on the regional banking efficiency. The analysis is carried out in two steps, (1) we use the Data Envelopment Analysis (DEA) for efficiency analysis, and (2) we use panel regression models for regression analysis. The results show that branches that operate at small regions are less efficient than those of the larger regions. Furthermore, both the ATMs and the number of branches have a positive relationship with deposits. This means that banks must continue to operate branches and ATMs in Greece. Finally, we show that local GDP helps significantly in increasing regional banking efficiency. The above findings are important given the need to support the local economy with modern banking services in Greece. Full article

(This article belongs to the Special Issue Banking and the Economy)

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28 pages, 1988 KiB

Open AccessArticle

Bottlenecks to Financial Development, Financial Inclusion, and Microfinance: A Case Study of Mauritania

by Mohamedou Bouasria, Arvind Ashta and Zaka Ratsimalahelo

J. Risk Financial Manag. 2020, 13(10), 239; https://doi.org/10.3390/jrfm13100239 - 13 Oct 2020

Cited by 6 | Viewed by 4660

Abstract

The objective of the study was to enhance our knowledge on institutional bottlenecks for financial development, financial inclusion, and microfinance, using Mauritania as a case study. We used a mixed-methods’ methodology that combines analysis of secondary data and an expert interview. First, a [...] Read more.

The objective of the study was to enhance our knowledge on institutional bottlenecks for financial development, financial inclusion, and microfinance, using Mauritania as a case study. We used a mixed-methods’ methodology that combines analysis of secondary data and an expert interview. First, a logit model with dummy independent variables was used to investigate the factors that impact the households’ access to credit, the main advantage of this model being to avoid confounding effects by analyzing the association of all variables together. Our study found that access to financial services is equal in Mauritania between men and women, but that access to credit is higher for public sector employees, educated people, and households with smaller families. Second, using principal components’ analysis, we found that the different regions of Mauritania can be divided based on unemployment, income, literacy, financial inclusion, and population density into two main dimensions, yielding four quadrants: Attractive, industrious, moderate, and resource cursed. We expected that sparsely populated countries would have less access to credit. Counterintuitively, we found that within a low-density country, people in the lowest-density regions have higher odds of getting credit. Third, based on an interview with an expert, we noted the key challenges that microfinance is facing in Mauritania and provided recommendations to overcome these. As in most case studies, external validity was limited. Full article

(This article belongs to the Special Issue Banking and the Economy)

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13 pages, 262 KiB

Open AccessArticle

The Impact of BASEL Accords on the Management of Vietnamese Commercial Banks

by Hai Long Pham and Kevin James Daly

J. Risk Financial Manag. 2020, 13(10), 228; https://doi.org/10.3390/jrfm13100228 - 27 Sep 2020

Cited by 7 | Viewed by 4284

Abstract

This paper is an attempt to empirically examine the impact of Basel Accord regulatory guidelines on the risk-based capital adequacy regulation and bank risk management of Vietnamese commercial banks. Our research aims to assess how Vietnamese commercial banks manage their capital ratio and [...] Read more.

This paper is an attempt to empirically examine the impact of Basel Accord regulatory guidelines on the risk-based capital adequacy regulation and bank risk management of Vietnamese commercial banks. Our research aims to assess how Vietnamese commercial banks manage their capital ratio and bank risk under the latest Basel Accord capital adequacy ratio requirements. Building on previous studies, this research uses a simultaneous equation modeling (SiEM) with three-stage least squares regression (3SLS) to analyze the endogenous relationship between risk-based capital adequacy standards and bank risk management. A year dummy variable (dy2013) is included in the model to take account of changes in the regulation of the Vietnamese banking system. Furthermore, we add a value-at-risk variable developed by as an independent variable into equations of the empirical models. The results reveal a significant impact of Basel capital adequacy regulatory pressure on the risk-based capital adequacy standards and bank risk management of Vietnamese commercial banks. Moreover, banks under the latest Basel capital adequacy regulations are induced to reduce risks and increase banks’ financial performance. Full article

(This article belongs to the Special Issue Banking and the Economy)

21 pages, 794 KiB

Open AccessArticle

A Study on the Impact of Capitalization on the Profitability of Banks in Emerging Markets: A Case of Pakistan

by Muhammad Haris, Yong Tan, Ali Malik and Qurat Ul Ain

J. Risk Financial Manag. 2020, 13(9), 217; https://doi.org/10.3390/jrfm13090217 - 18 Sep 2020

Cited by 9 | Viewed by 4899

Abstract

A strong capitalized position of financial institutions is essential to ensure their solvency. Because of their unique nature, banks must always keep an optimum level of capital to ensure smooth banking earnings. Consequently, it is mandatory for all types of banks operating in [...] Read more.

A strong capitalized position of financial institutions is essential to ensure their solvency. Because of their unique nature, banks must always keep an optimum level of capital to ensure smooth banking earnings. Consequently, it is mandatory for all types of banks operating in Pakistan to keep a minimum amount of required capital along with capital adequacy to remain solvent and profitable. Therefore, using three measures of capitalization, i.e., the Capital Ratio (CR), Capital Adequacy Ratio (CAR), and Minimum Capital Requirement (MCR), and four measures of profitability, i.e., Return on Avg. Assets (ROAA), Return on Avg. Equity (ROAE), Net Interest Margin (NIMAR), and Profit Margin (NMAR), this study contributes to the existing literature on the relationship between the capitalization and profitability of 29 Pakistani banks over the period of 2007–2018. The results, based on the Generalized Method of Moments (GMM) system estimator technique, reported an inverted U-shaped relationship between the two capitalization measures, i.e., CR and CAR, and the four profitability measures, i.e., ROAA, ROAE, NIMAR, and NMAR. This indicates that profitability increases with an increase in capitalization up to a certain level, while beyond that level, a further increase in capitalization decreases profitability. The results also indicate that banks who maintain their MCR have higher profitability than those who do not. Full article

(This article belongs to the Special Issue Banking and the Economy)

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18 pages, 479 KiB

Open AccessArticle

Do Profitable Banks Make a Positive Contribution to the Economy?

by Vijay Kumar and Ron Bird

J. Risk Financial Manag. 2020, 13(8), 159; https://doi.org/10.3390/jrfm13080159 - 24 Jul 2020

Cited by 11 | Viewed by 4421

Abstract

A number of studies have investigated the relationship between financial sector development and economic growth; however, the impact of bank profitability on economic growth is still unclear. We investigate the link between bank profitability and economic growth in the Asia-Pacific region over the [...] Read more.

A number of studies have investigated the relationship between financial sector development and economic growth; however, the impact of bank profitability on economic growth is still unclear. We investigate the link between bank profitability and economic growth in the Asia-Pacific region over the period 2004–2014. Using the system GMM estimator, our findings suggest that a profitable banking sector is a prerequisite for economic growth in the Asia-Pacific region and that the impact of bank profitability on economic growth is more prominent in small banking sectors. Perhaps surprisingly, we found that the bank size has a negative impact on GDP growth, with the influence of bank profitability on economic growth reducing as the size of the banking sector increases. Our results also show that the impact of profitability on economic growth is much larger in developed economies compared to small emerging and large emerging economies. Full article

(This article belongs to the Special Issue Banking and the Economy)

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17 pages, 954 KiB

Open AccessArticle

The Role of Redenomination Risk in the Price Evolution of Italian Banks’ CDS Spreads

by Michele Anelli, Michele Patanè, Mario Toscano and Stefano Zedda

J. Risk Financial Manag. 2020, 13(7), 150; https://doi.org/10.3390/jrfm13070150 - 10 Jul 2020

Viewed by 3669

Abstract

The recent financial crisis offered an interesting opportunity to analyze the markets’ behavior in a high-volatility framework. In this paper, we analyzed the price discovery process of the Italian banks’ Credit Default Swap (CDS) spreads through the Merton model, extended with the inclusion [...] Read more.

The recent financial crisis offered an interesting opportunity to analyze the markets’ behavior in a high-volatility framework. In this paper, we analyzed the price discovery process of the Italian banks’ Credit Default Swap (CDS) spreads through the Merton model, extended with the inclusion of a redenomination risk proxy, as to say, the risk that Italy could leave the eurozone. This paper contributes to the literature by integrating the classic Merton model with a political-sensitive market variable able to explain the greatest variance in the Italian banks’ CDS spreads during the most relevant and commonly recognized periods of socio-political and financial distress. Results show that the redenomination risk is progressively becoming the main driver of the process during crises, in particular for the sovereign debt crisis and in 2018. Full article

(This article belongs to the Special Issue Banking and the Economy)

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46 pages, 4894 KiB

Open AccessArticle

Life after Debt: The Effects of Overleveraging on Conventional and Islamic Banks

by Samar Issa

J. Risk Financial Manag. 2020, 13(6), 137; https://doi.org/10.3390/jrfm13060137 - 24 Jun 2020

Cited by 7 | Viewed by 3194

Abstract

It is generally argued that Islamic banks are safer than conventional banks. The prime reason is that their product structure is essentially asset-backed financing, while conventional banks rely heavily on leveraging, which was considered one of the main causes of the 2008 global [...] Read more.

It is generally argued that Islamic banks are safer than conventional banks. The prime reason is that their product structure is essentially asset-backed financing, while conventional banks rely heavily on leveraging, which was considered one of the main causes of the 2008 global financial crisis. This paper examines the riskiness of Islamic and conventional banks during the 2008 global crisis by measuring overleveraging, defined as the difference between actual and optimal debt. This research conducted empirical analysis on the overleveraging of 20 banks (10 conventional and 10 Islamic banks) from five different countries, namely, Bahrain, Kuwait, Malaysia, the United States, and the United Kingdom. The analysis is double-folded: on the one hand, the results in this paper suggest that excess debt, rather than the mere holding of debt, was the reason behind the severe financial meltdown in 2007–2009; on the other hand, this paper shows that Islamic banks, in most of the countries in context, performed better during the recent crisis, but were subject to the second-round effect of the global crisis around the years of 2011–2013. Full article

(This article belongs to the Special Issue Banking and the Economy)

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27 pages, 339 KiB

Open AccessArticle

Microfinance Participation in Thailand

by Wittawat Hemtanon and Christopher Gan

J. Risk Financial Manag. 2020, 13(6), 122; https://doi.org/10.3390/jrfm13060122 - 11 Jun 2020

Cited by 3 | Viewed by 5680

Abstract

Income inequality is a major problem in Thailand. A key determinant of income inequality in Thailand is the lack of financial access to financial institutions for low-income families. Microfinance institutions (MFIs) play an important role in enabling poor households to access financial resources [...] Read more.

Income inequality is a major problem in Thailand. A key determinant of income inequality in Thailand is the lack of financial access to financial institutions for low-income families. Microfinance institutions (MFIs) play an important role in enabling poor households to access financial resources at a reasonable cost. The purpose of this paper is to investigate factors that affect Thai households participating in microfinance programs in Thailand. A multinomial logit model is used to investigate the factors that impact the Thai households’ access to microfinance. The study employs secondary data from the Thai Socioeconomic Survey (cross-sectional data in 2017) to identify factors affecting Thai household participation in microfinance programs. The results show that the Village Fund (VF) targets low-income rural households and encourages those with older household heads who have lower levels of education, and female household heads, to participate in their program. Larger households are more likely to access the VF. Households with higher dependency ratios are less likely to borrow from the VF. Households with well-educated, young household heads in regional areas are more likely to borrow money from Saving Groups for Production (SGPs). SGP borrower households have higher household incomes than VF borrower households. Our findings indicate that VFs and SGPs are credit sources in the rural credit market; these sources enable rural households to access credit to meet their needs. In addition, rural Thai households borrow from many sources so that they can rotate their loan repayments. Low-income households refinance their loans by borrowing from different sources. Full article

(This article belongs to the Special Issue Banking and the Economy)

12 pages, 2004 KiB

Open AccessCommunication

Negative Interest Rates

by Sarkis Joseph Khoury and Poorna C. Pal

J. Risk Financial Manag. 2020, 13(5), 90; https://doi.org/10.3390/jrfm13050090 - 7 May 2020

Cited by 2 | Viewed by 5401

Abstract

Negative interest rates are an invention of monetary authorities to show that monetary activism does not have boundaries, i.e., as if there is no such thing as a liquidity trap. Their presence in the financial landscape has redefined the benefits to savers and [...] Read more.

Negative interest rates are an invention of monetary authorities to show that monetary activism does not have boundaries, i.e., as if there is no such thing as a liquidity trap. Their presence in the financial landscape has redefined the benefits to savers and to investors. Governments can now borrow at will without visibly adding to budget deficits. This makes negative interest borrowing an alternative to raising taxes. Banks can now achieve regulatory compliance partially at the expense of depositors. Commercial banks pay to keep money at the central bank instead of earning interest on it. This paper shows the true nature of negative interest rates and their consequences on various economic agents and performance measures, specifically on economic growth and exchange rates. In addition, this paper demonstrates that the arguments in favor of negative interest rates have been largely exaggerated based on the weight of the evidence that shows the United States, which never issued negative interest rates debt, is a leader among developed countries in terms of economic growth in a non-inflationary environment. Full article

(This article belongs to the Special Issue LIQUIDITY: Efficiency and Stability in Financial Markets - Selected papers from 4th Chapman Conference on Money and Finance.)

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12 pages, 1184 KiB

Open AccessArticle

Global Bank Capital and Liquidity after 30 Years of Basel Accords

by Harald Benink

J. Risk Financial Manag. 2020, 13(4), 73; https://doi.org/10.3390/jrfm13040073 - 16 Apr 2020

Cited by 4 | Viewed by 3523

Abstract

In this paper we analyze the effectiveness of more than 30 years of efforts by international banking supervisors, working together in the Basel Committee on Banking Supervision, to harmonize capital and liquidity standards for internationally active banks. Notwithstanding the great efforts and progress [...] Read more.

In this paper we analyze the effectiveness of more than 30 years of efforts by international banking supervisors, working together in the Basel Committee on Banking Supervision, to harmonize capital and liquidity standards for internationally active banks. Notwithstanding the great efforts and progress made by international banking supervisors since the financial crisis of 2007–2009, two important issues require further attention. First, although bank capital ratios have been raised significantly since the recent financial crisis, they are still at historically low levels. In a world in which global debt ratios have risen even further during the past decade, this is a worrying signal of fragility in the global financial system. Second, bank liquidity requirements may have become too complex and could also have unintented and unpredictable interaction effects with bank capital requirements. Full article

(This article belongs to the Special Issue LIQUIDITY: Efficiency and Stability in Financial Markets - Selected papers from 4th Chapman Conference on Money and Finance.)

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25 pages, 2612 KiB

Open AccessArticle

Relative Efficiency of Canadian Banks: A Three-Stage Network Bootstrap DEA

by Mohamed Dia, Amirmohsen Golmohammadi and Pawoumodom M. Takouda

J. Risk Financial Manag. 2020, 13(4), 68; https://doi.org/10.3390/jrfm13040068 - 10 Apr 2020

Cited by 12 | Viewed by 4273

Abstract

In this study, we focus on how banks can enhance their efficiency in the utilization of resources to ensure their economic sustainability. We propose a novel three-stage (production, investment, and revenue generation) network Data Envelopment Analysis (DEA) with bootstrapping to evaluate the performance [...] Read more.

In this study, we focus on how banks can enhance their efficiency in the utilization of resources to ensure their economic sustainability. We propose a novel three-stage (production, investment, and revenue generation) network Data Envelopment Analysis (DEA) with bootstrapping to evaluate the performance of the six big Canadian banks for the period 2000–2017, amid the 2007 financial crisis and the increasing competition level due to new technologies. We identify the best practices in each stage that can be used as benchmarks by other banks to improve their economic sustainability. Our results indicate that the 2007 financial crisis resulted in lower efficiencies in the performance of Canadian banks. This decline was not substantial for the production and investment stages when the revenue generation stage received the greatest hit. In addition, we observed that the individual banks did not have consistent performance in the different stages. Finally, we compared our model with the black box DEA model and concluded that the network DEA provides more insightful and accurate results in terms of banks’ efficiencies. Full article

(This article belongs to the Special Issue Banking and the Economy)

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9 pages, 231 KiB

Open AccessArticle

Liquidity and Corporate Governance

by Tom Berglund

J. Risk Financial Manag. 2020, 13(3), 54; https://doi.org/10.3390/jrfm13030054 - 10 Mar 2020

Cited by 13 | Viewed by 5471

Abstract

This paper discusses the relationship between stock market liquidity and corporate governance. Both concepts are widely investigated from different angles in the literature. It is generally agreed that they are related so that better corporate governance implies higher liquidity for shares of listed [...] Read more.

This paper discusses the relationship between stock market liquidity and corporate governance. Both concepts are widely investigated from different angles in the literature. It is generally agreed that they are related so that better corporate governance implies higher liquidity for shares of listed companies. However, the importance of good corporate governance for the market liquidity of the share will differ depending on the characteristics of the firm’s business. Good corporate governance will be particularly important in reducing agency problems in firms where the business is subject to a high degree of uncertainty. Proper corporate governance, in other words, matters most for firms where external assessment of the firm’s business prospects is difficult, while it is less important for value creation in firms where the business is easier to understand. Full article

(This article belongs to the Special Issue LIQUIDITY: Efficiency and Stability in Financial Markets - Selected papers from 4th Chapman Conference on Money and Finance.)

14 pages, 2250 KiB

Open AccessArticle

News-Driven Expectations and Volatility Clustering

by Sabiou M. Inoua

J. Risk Financial Manag. 2020, 13(1), 17; https://doi.org/10.3390/jrfm13010017 - 20 Jan 2020

Cited by 6 | Viewed by 4831

Abstract

Financial volatility obeys two fascinating empirical regularities that apply to various assets, on various markets, and on various time scales: it is fat-tailed (more precisely power-law distributed) and it tends to be clustered in time. Many interesting models have been proposed to account [...] Read more.

Financial volatility obeys two fascinating empirical regularities that apply to various assets, on various markets, and on various time scales: it is fat-tailed (more precisely power-law distributed) and it tends to be clustered in time. Many interesting models have been proposed to account for these regularities, notably agent-based models, which mimic the two empirical laws through a complex mix of nonlinear mechanisms such as traders switching between trading strategies in highly nonlinear way. This paper explains the two regularities simply in terms of traders’ attitudes towards news, an explanation that follows from the very traditional dichotomy of financial market participants, investors versus speculators, whose behaviors are reduced to their simplest forms. Long-run investors’ valuations of an asset are assumed to follow a news-driven random walk, thus capturing the investors’ persistent, long memory of fundamental news. Short-term speculators’ anticipated returns, on the other hand, are assumed to follow a news-driven autoregressive process, capturing their shorter memory of fundamental news, and, by the same token, the feedback intrinsic to the short-sighted, trend-following (or herding) mindset of speculators. These simple, linear models of traders’ expectations explain the two financial regularities in a generic and robust way. Rational expectations, the dominant model of traders’ expectations, is not assumed here, owing to the famous no-speculation, no-trade results. Full article

(This article belongs to the Special Issue LIQUIDITY: Efficiency and Stability in Financial Markets - Selected papers from 4th Chapman Conference on Money and Finance.)

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21 pages, 355 KiB

Open AccessArticle

Revenue Diversification, Risk and Bank Performance of Vietnamese Commercial Banks

by Khanh Ngoc Nguyen

J. Risk Financial Manag. 2019, 12(3), 138; https://doi.org/10.3390/jrfm12030138 - 28 Aug 2019

Cited by 20 | Viewed by 9297

Abstract

In the future, when the process of economic integration in the banking sector is more powerful, and competitive, diversifying revenue is an inevitable and objective trend to help the banks increase profits, minimize risks and improve their competitive position in the system. The [...] Read more.

In the future, when the process of economic integration in the banking sector is more powerful, and competitive, diversifying revenue is an inevitable and objective trend to help the banks increase profits, minimize risks and improve their competitive position in the system. The research is on the relationship between revenue diversification, risk and bank performance using data from audited financial statements and annual reports of 26 commercial banks listed and unlisted in Vietnam during the period 2010–2018. The research method uses Generalized Method of Moment (GMM) modeling techniques to solve endogenous problems, variance and autocorrelation in the research model. Research results show that diversification negatively impacts profitability and the higher the diversification, the higher the risk of commercial banks. However, the more diversified listed banks, the more increased the bank’s stability. The banks show the weakness and lack of experience of the banking system in developing a reasonable profit transformation model. The revenue diversification of banks is currently passive and moves slowly. Interest income is still the motivation of bank development, boosting profit growth. Growth, as well as the contribution from service activities, is not commensurate with potentials; although there are many positive points, they are not enough to cover risks from net interest income activities. Full article

(This article belongs to the Special Issue Commercial Banking)

16 pages, 253 KiB

Open AccessArticle

Competition in the Indian Banking Sector: A Panel Data Approach

by Zhiheng Li, Shuangzhe Liu, Fanda Meng and Milind Sathye

J. Risk Financial Manag. 2019, 12(3), 136; https://doi.org/10.3390/jrfm12030136 - 22 Aug 2019

Cited by 9 | Viewed by 4196

Abstract

The paper aims to assess the level of competition in the Indian banking sector overall as well as within the three groups of banks: foreign owned, state owned (public sector), and privately owned. We use panel data for the period from 2005–2018. We [...] Read more.

The paper aims to assess the level of competition in the Indian banking sector overall as well as within the three groups of banks: foreign owned, state owned (public sector), and privately owned. We use panel data for the period from 2005–2018. We found that the overall competition in the Indian banking sector is strong, although there are differences by type of bank ownership. The Indian banking market continues to be characterized by monopolistic competition. The various policy measures taken by the Indian government in recent years appear to have helped boost competition. A policy suggestion would be to further liberalize the banking sector for foreign investment. Full article

(This article belongs to the Special Issue Commercial Banking)

21 pages, 1220 KiB

Open AccessArticle

Can Higher Capital Discipline Bank Risk: Evidence from a Meta-Analysis

by Quang T. T. Nguyen, Son T. B. Nguyen and Quang V. Nguyen

J. Risk Financial Manag. 2019, 12(3), 134; https://doi.org/10.3390/jrfm12030134 - 20 Aug 2019

Cited by 6 | Viewed by 3632

Abstract

Capital regulation has been among the most important tools for regulators to maintain the credibility and stability of the financial systems. However, the question whether higher capital induce banks to take lower risk remains unanswered. This paper examines the effect of capital on [...] Read more.

Capital regulation has been among the most important tools for regulators to maintain the credibility and stability of the financial systems. However, the question whether higher capital induce banks to take lower risk remains unanswered. This paper examines the effect of capital on bank risk employing a meta-analysis approach, which considers a wide range of empirical papers from 1990 to 2018. We found that the negative effect of bank capital on bank risk, which implies the discipline role of bank capital, is more likely to be reported. However, the reported results are suffered from the publication bias due to the preference for significant estimates and favored results. Our study also shows that the differences in the previous studies’ conclusions are primarily caused by the differences in the study design, particularly the risk and capital measurements; the model specification such as the concern for the dynamic of bank risk behaviors, the endogeneity of the capital and unobserved time fixed effects; along with and the sample characteristics such as the sample size, and whether banks are bank holding companies or located in high-income countries. Full article

(This article belongs to the Special Issue Commercial Banking)

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25 pages, 381 KiB

Open AccessArticle

Role of Bank Regulation on Bank Performance: Evidence from Asia-Pacific Commercial Banks

by Zhenni Yang, Christopher Gan and Zhaohua Li

J. Risk Financial Manag. 2019, 12(3), 131; https://doi.org/10.3390/jrfm12030131 - 7 Aug 2019

Cited by 18 | Viewed by 7251

Abstract

The banking industry is an essential financial intermediary, thus the efficient operation of banks is vital for economic development and social welfare. However, the 2008 global financial crisis triggered a reconsideration of the banking systems, as well as the role of government intervention. [...] Read more.

The banking industry is an essential financial intermediary, thus the efficient operation of banks is vital for economic development and social welfare. However, the 2008 global financial crisis triggered a reconsideration of the banking systems, as well as the role of government intervention. The literature has paid little attention to the banking industry in the Asia-Pacific region in the context of bank efficiency. This study employs double bootstrap data envelopment analysis to measure bank efficiency and examine the relationship between regulation, supervision, and state ownership in commercial banks in the Asia-Pacific region for the period 2005 to 2014. Our results indicate that excluding off-balance sheet activities in efficiency estimations lead to underestimating of the pure technical efficiency, while overestimating the scale efficiency of banks in the Asia-Pacific region. Cross-country comparisons reveal that Australian banks exhibit the highest levels of technical efficiency, while Indonesian banks exhibit the lowest average. Our bootstrap regression results suggest that bank regulation and supervision are positively related to bank technical efficiency, while state ownership is not significantly related to bank efficiency. Furthermore, our findings show that tighter regulation and supervision are significantly related to higher efficiency for small and large-sized banks. Full article

(This article belongs to the Special Issue Commercial Banking)

15 pages, 1506 KiB

Open AccessArticle

The Good and Bad News about the New Liquidity Rules of Basel III in Islamic Banking of Malaysia

by Shazleena Mohamed Zainudin, Siti Zaleha Abdul Rasid, Rosmini Omar and Rohail Hassan

J. Risk Financial Manag. 2019, 12(3), 120; https://doi.org/10.3390/jrfm12030120 - 17 Jul 2019

Cited by 2 | Viewed by 8704

Abstract

How has Basel III (Bank for International Settlements), regarding the computation, measurement, and management of the liquidity coverage ratio (LCR), vitalized the Islamic banking sector in emerging economies? Vice versa, what is the Islamic banking sector’s capacity to respond in embracing Basel III? [...] Read more.

How has Basel III (Bank for International Settlements), regarding the computation, measurement, and management of the liquidity coverage ratio (LCR), vitalized the Islamic banking sector in emerging economies? Vice versa, what is the Islamic banking sector’s capacity to respond in embracing Basel III? This study aims to review the current issues faced by a bank as it discusses the current regulatory guidelines and operational challenges in implementing the system. Based on the implementation of LCR preliminary secondary data of Malaysian banks between 2010 and 2016, this study finds that the readiness of LCR system implementation in the Islamic banking industry is currently low because LCR is still relatively new for all financial institutions and vendors. There is a huge gap between the present system infrastructure of the banks and the LCR model requirements as defined by BNM (Bank Negara Malaysia) under Basel III. Nevertheless, this finding opens new horizons of understanding and practically offers further investigations for the whole banking sector in Malaysia. Thus, policy makers, regulators, and industry players should utilize a unique framework for Islamic banks when strategizing liquidity risk management. Full article

(This article belongs to the Special Issue Feature Papers on Banking and Finance)

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26 pages, 710 KiB

Open AccessArticle

Bank Competition, Foreign Bank Entry, and Risk-Taking Behavior: Cross Country Evidence

by Sichong Chen, Muhammad Imran Nazir, Shujahat Haider Hashmi and Ruqia Shaikh

J. Risk Financial Manag. 2019, 12(3), 106; https://doi.org/10.3390/jrfm12030106 - 26 Jun 2019

Cited by 16 | Viewed by 7806

Abstract

This unique study examines the interactive role of bank competition and foreign bank entry in explaining the risk-taking of banks over the globe. We used cross-country data for the banking sector from 2000 to 2016. Using the pooled regression model and Two-stage Least [...] Read more.

This unique study examines the interactive role of bank competition and foreign bank entry in explaining the risk-taking of banks over the globe. We used cross-country data for the banking sector from 2000 to 2016. Using the pooled regression model and Two-stage Least Squares model (2SLS with Generalized Method of Moments GMM), we document that foreign bank entry decreases the risk-taking behavior of the banks to a certain level and exhibits an inverted U-shaped relation with financial stability. Furthermore, the joint effect of bank competition and foreign bank entry brings financial fragility because host banks tend to make risky investments due to undue competition induced by foreign bank entry. We support the competition–fragility hypothesis when foreign bank entry goes beyond a certain threshold. Our results also suggest that restrictions on bank activities and capital regulation stringency reduce the level of the risk factor. We also applied various robustness tests, which further confirm our mainstream results. Our findings have policy implications for foreign investors and regulatory authorities. Full article

(This article belongs to the Special Issue Commercial Banking)

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18 pages, 303 KiB

Open AccessArticle

Capital Adequacy, Deposit Insurance, and the Effect of Their Interaction on Bank Risk

by Seksak Jumreornvong, Chanakarn Chakreyavanich, Sirimon Treepongkaruna and Pornsit Jiraporn

J. Risk Financial Manag. 2018, 11(4), 79; https://doi.org/10.3390/jrfm11040079 - 19 Nov 2018

Cited by 7 | Viewed by 4793

Abstract

This paper investigates how deposit insurance and capital adequacy affect bank risk for five developed and nine emerging markets over the period of 1992–2015. Although full coverage of deposit insurance induces moral hazard by banks, deposit insurance is still an effective tool, especially [...] Read more.

This paper investigates how deposit insurance and capital adequacy affect bank risk for five developed and nine emerging markets over the period of 1992–2015. Although full coverage of deposit insurance induces moral hazard by banks, deposit insurance is still an effective tool, especially during the time of crisis. On the contrary, capital adequacy by itself does not effectively perform the monitoring role and leads to the asset substitution problem. Implementing the safety nets of both deposit insurance and capital adequacy together could be a sustainable financial architecture. Immediate-effect analysis reveals that the interplay between deposit insurance and capital adequacy is indispensable for banking system stability. Full article

(This article belongs to the Special Issue Commercial Banking)

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43 pages, 2467 KiB

Open AccessReview

Fantastic Beasts: Blockchain Based Banking

by Dulani Jayasuriya Daluwathumullagamage and Alexandra Sims

J. Risk Financial Manag. 2021, 14(4), 170; https://doi.org/10.3390/jrfm14040170 - 9 Apr 2021

Cited by 14 | Viewed by 9890

Abstract

Blockchain is one of the primary digital technologies utilised in the finance industry with huge future potential. This study conducts a systematic literature review of a final sample of 407 prior literature from an initial set of 1979 records for the sample period [...] Read more.

Blockchain is one of the primary digital technologies utilised in the finance industry with huge future potential. This study conducts a systematic literature review of a final sample of 407 prior literature from an initial set of 1979 records for the sample period of 2013–2020 with regard to blockchain adoption in banking. This review is further supplemented by a machine learning based textual analysis that identifies key themes, trends, divergences and gaps between academic and practitioner led industry literature. Moreover, the study highlights present, future use cases, adoption barriers and misconceptions of blockchains in banking, especially given COVID-19. Furthermore, this study identifies behavioural, social, economic, regulatory and managerial implications of blockchain based banking. In addition, our study identifies the cross-industry potential of blockchains via banking, thus, linking much disconnected prior literature. Finally, we develop a blockchain adoption framework and an adoption life cycle for banking. This study would be of interest to academics, bankers, regulators, investors, auditors and other stakeholders in financial markets. Full article

(This article belongs to the Special Issue Advances in Banking and Finance)

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27 pages, 2784 KiB

Open AccessReview

Regulatory Restrictions on US Bank Funding Sources: A Review of the Treatment of Brokered Deposits

by James R. Barth, Wenling Lu and Yanfei Sun

J. Risk Financial Manag. 2020, 13(6), 130; https://doi.org/10.3390/jrfm13060130 - 18 Jun 2020

Cited by 3 | Viewed by 3680

Abstract

This paper is the first paper to provide a comprehensive review of the US regulatory treatment of a relatively recent and controversial source of funds, namely brokered deposits. To do this, we consider the extent to which banks rely on brokered deposits, as [...] Read more.

This paper is the first paper to provide a comprehensive review of the US regulatory treatment of a relatively recent and controversial source of funds, namely brokered deposits. To do this, we consider the extent to which banks rely on brokered deposits, as well as the impact of these funds on bank performance, bank failures, and bank failure costs. We also consider the changes taking place in technologies and how they continue to affect the way banks obtain funds and provide services to their customers. Our conclusion is that, without sufficient evidence to the contrary, such deposits should be treated no differently from all other deposits and other purchased funds. Full article

(This article belongs to the Special Issue Banking and the Economy)

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Other

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11 pages, 1670 KiB

Open AccessBrief Report

QE versus the Real Problems in the World Economy

by Adrian Blundell-Wignall

J. Risk Financial Manag. 2020, 13(1), 11; https://doi.org/10.3390/jrfm13010011 - 4 Jan 2020

Cited by 2 | Viewed by 4009

Abstract

These notes are based on parts of a keynote address to the Fourth Annual Conference on Money and Finance at Chapman University on 6–7 September 2019. Quantitative easing (QE) policies have been pushed to extremes and extended well beyond their use-by dates to [...] Read more.

These notes are based on parts of a keynote address to the Fourth Annual Conference on Money and Finance at Chapman University on 6–7 September 2019. Quantitative easing (QE) policies have been pushed to extremes and extended well beyond their use-by dates to little plausible effect in achieving the goal of raising inflation and growth. Instead, they are damaging the interbank market (as exemplified by the liquidity crisis in September 2019), adding to the risk of financial crises in the future and taking pressure off policy-makers to deal with the real causes of poor investment, growth and deflation pressure. The shift in where investment is occurring and the special problems of Europe and Brexit are focused upon. Full article

(This article belongs to the Special Issue LIQUIDITY: Efficiency and Stability in Financial Markets - Selected papers from 4th Chapman Conference on Money and Finance.)

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