Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Regulations and banking crisis: lessons from the African context

Regulations and banking crisis: lessons from the African context This study aims to investigate the coordinated impact of regulations on the predicted probability of a banking crisis in Africa.Design/methodology/approachThe study used the dynamic panel instrumental variable probit regression model of 52 African economies over the period 2006 to 2018.FindingsThe authors observe that banking crisis is persistent for few years but dissipates in the long run. The results show that board mechanism and ownership control are important in reducing the likelihood of banking crisis. The authors found a negative impact of regulatory capital and monetary policy on the predicted probability of a banking crisis while regulatory quality was not strong in reducing the likelihood of banking crisis. There was also evidence to support that regulatory capital and monetary policy augment the negative impact of board mechanism and ownership control on the predicted probability of a banking crisis.Research limitations/implicationsThe limitation of the study is that it did not explore all measures of regulatory framework and how they impact banking crisis. However, it has an advantage of using alternative measures of regulations in a banking crisis probability model. Therefore, future studies should include other macro-prudential regulations, regulatory environments and supervision and observe how they are coordinated to reduce possible crisis in a robust methodological framework.Practical implicationsThe research has policy implications for monetary authorities and policymakers to set coordinated regulations through internal banking mechanisms that are relevant in sustaining banking system stability goals. Countries in Africa should strengthen their quality of regulation in such a way that it can play a strong and complementary role to a robust internal control mechanisms, so as to maintain stability in the banking system. In general, regulators and policymakers should design greater coordination of external and internal regulations through a single regulatory framework and a common resolution mechanism that make the banking system more robust in curbing possible crisis.Social implicationsThe policy implication of the study is to build banking confidence in the society.Originality/valueThis study analyses the interactions of different components of internal and external regulatory framework in helping to reduce the probability of a banking crisis in Africa. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Regulation and Compliance Emerald Publishing

Regulations and banking crisis: lessons from the African context

Download PDF
28 pages

Loading next page...
 
/lp/emerald-publishing/regulations-and-banking-crisis-lessons-from-the-african-context-vpBY0N4NuZ
Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1358-1988
eISSN
1358-1988
DOI
10.1108/jfrc-09-2021-0073
Publisher site
See Article on Publisher Site

Abstract

This study aims to investigate the coordinated impact of regulations on the predicted probability of a banking crisis in Africa.Design/methodology/approachThe study used the dynamic panel instrumental variable probit regression model of 52 African economies over the period 2006 to 2018.FindingsThe authors observe that banking crisis is persistent for few years but dissipates in the long run. The results show that board mechanism and ownership control are important in reducing the likelihood of banking crisis. The authors found a negative impact of regulatory capital and monetary policy on the predicted probability of a banking crisis while regulatory quality was not strong in reducing the likelihood of banking crisis. There was also evidence to support that regulatory capital and monetary policy augment the negative impact of board mechanism and ownership control on the predicted probability of a banking crisis.Research limitations/implicationsThe limitation of the study is that it did not explore all measures of regulatory framework and how they impact banking crisis. However, it has an advantage of using alternative measures of regulations in a banking crisis probability model. Therefore, future studies should include other macro-prudential regulations, regulatory environments and supervision and observe how they are coordinated to reduce possible crisis in a robust methodological framework.Practical implicationsThe research has policy implications for monetary authorities and policymakers to set coordinated regulations through internal banking mechanisms that are relevant in sustaining banking system stability goals. Countries in Africa should strengthen their quality of regulation in such a way that it can play a strong and complementary role to a robust internal control mechanisms, so as to maintain stability in the banking system. In general, regulators and policymakers should design greater coordination of external and internal regulations through a single regulatory framework and a common resolution mechanism that make the banking system more robust in curbing possible crisis.Social implicationsThe policy implication of the study is to build banking confidence in the society.Originality/valueThis study analyses the interactions of different components of internal and external regulatory framework in helping to reduce the probability of a banking crisis in Africa.

Journal

Journal of Financial Regulation and Compliance – Emerald Publishing

Published: Sep 26, 2022

Keywords: Corporate governance; Banking crisis; Banking regulation; Regulatory policy; Predicted probability of banking crisis; Board mechanism; Board ownership; External regulations; E61; G21; L10; L51; M21

References

  • Industry classification and the capital structure of Ghanaian SMEs
    Abor, J.
  • More on the relationship between corporate governance and firm performance in the UK: evidence from the application of generalized method of moments estimation
    Akbar, S.; Poletti-Hughes, J.; El-Faitouri, R.; Shah, S.Z.A.
  • The effects of the financial crisis on Sub-Saharan Africa
    Allen, F.; Giovannetti, G.
  • Financial imbalances, crisis probability and monetary policy in Norway
    Alstadheim, R.; Robstad, Ø.; Vonen, N.H.
  • The estimation of a simultaneous equation generalized Probit model
    Amemiya, T.
  • Another look at the instrumental variable estimation of error-components models
    Arellano, M.; Bover, O.
  • Non-performing loan and its effects on banking stability: evidence from national and international licensed banks in Nigeria
    Atoi, N.V.
  • The global financial crisis and the disclosure paradigm in European financial regulation: the case for reform
    Avgouleas, E.
  • The great depression and other ‘contagious’ events
    Calomiris, C.
  • Banking crises
    Caprio, G.; Honohan, P.; Berger, A.N.; Molyneux, P.
  • Proposals for effectively regulating the US financial system to avoid yet another meltdown (no. 2008-15)
    Crotty, J.; Epstein, G.
  • Banking crises and market discipline: international evidence
    Cubillas, E.; Fonseca, A.R.; González, F.
  • Economic theories of regulation
    den Hertog, J.
  • Bank corporate governance, beyond the global banking crisis. Financial markets
    Dermine, J.
  • Theories of finance and financial crisis – lessons for the great recession
    Dodig, N.; Herr, H.
  • Managing currency crises in emerging markets
    Dooley, M.; Frankel, J.
  • The 2008/2009 banking crisis in Nigeria: the hidden trigger of the financial crash
    Egboro, E.M.
  • Corporate governance in the 2007 –2008 financial crisis: evidence from financial institutions worldwide
    Erkens, D.H.; Hung, M.; Matos, P.
  • Institutional quality and bank instability: cross-countries evidence in emerging countries
    Essid, Z.; Boujelbene, Y.; Plihon, D.
  • Capital adequacy: a financial soundness indicator for banks
    Fatima, N.
  • Supervisory boards, financial crisis and bank performance: do board characteristics matter?
    Fernandes, C.; Farinha, J.; Martins, F.V.; Mateus, C.
  • Regulation as accounting theory
    Gaffikin, M.
  • Leaning against the wind when credit bites back
    Gerdrup, K.; Hansen, F.; Krogh, T.; Maih, J.
  • Origins of banking crises revisited: evidence from developed and developing countries
    Ghardallou, W.
  • Three branches of theories of financial crises
    Goldstein, I.; Razin, A.
  • Common legal principles of advanced regulatory systems
    Hantke-Domas, D.
  • Financial stability and the design of monetary policy (1) documento de trabajo n° 0315
    Herrero, A.G.; del Río, P.
  • Post-crisis international banking; an analysis with new regulatory survey data (IMF working papers no. 16/88)
    Ichiue, H.; Lambert, F.
  • The impact of regulation on economic growth in developing countries: a cross-country analysis
    Jalilian, H.; Kirkpatrick, C.; Parker, D.
  • The impact of privatization in developing countries: a review of the evidence and the policy lessons
    Kirkpatrick, C.; Parker, D.
  • Bank regulation, the quality of institutions, and banking risk in emerging and developing countries: an empirical analysis
    Klomp, J.; de Haan, J.
  • Determinants of bank lending behaviour in Ghana
    Ladime, J.; Sarpong-Kumankoma, E.; Osei, K.A.
  • Banking crises: a review The
    Laeven, L.
  • Banking crisis revisited
    Laeven, L.; Valencia, F.
  • The economics of disclosure and financial reporting regulation: evidence and suggestions for future research
    Leuz, C.; Wysocki, P.D.
  • Banking crisis, bank regulation and intervention
    Lu, W.
  • Bank competition in Sub-Saharan African countries: Has anything changed in the light of 2007-2008 global financial crisis?
    Motsi, S.; Ajuwon, O.S.; Ntim, C.
  • Banking crisis prediction: emerging crisis determinants in Indonesian banks
    Musdholifah, M.; Hartono, U.; Wulandari, Y.
  • Can directors impact performance? A case‐based test of three theories of corporate governance
    Nicholson, G.J.; Kiel, G.C.
  • Capital requirement, bank competition and stability in Africa
    Oduor, J.; Ngoka, K.; Odongo, M.
  • Banking stability determinants in Africa
    Ozili, P.K.
  • Does board structure in banks really affect their performance?
    Pathan, S.; Faff, R.
  • Banking regulation theories
    Ping, H.W.
  • Financial liberalization and banking crises
    Shehzad, C.T.; De Haan, J.
  • Cost-benefit analysis of leaning against the wind
    Svensson, L.E.
  • The economic value of regulated disclosure: evidence from the banking sector
    Tadesse, S.
  • Stability and profitability in the Chinese banking industry: evidence from an auto-regressive-distributed linear specification
    Tan, A.Y.; Anchor, J.R.
  • The impacts of competition and shadow banking on profitability: evidence from the Chinese banking industry
    Tan, Y.
  • The theory of regulation: a review article
    Uche, C.U.
  • Growth commission
  • Institutional quality and bank instability: cross-countries evidence in emerging countries
    Zina, E.; Plihon, B.Y.
  • Previous financial crises leading to stagnation – selected case studies
    Dodig, N.; Herr, H.
  • Key indicators for a countercyclical capital buffer in Norway
    Gerdrup, K.; Kvinlog, A.B.; Schaanning, E.
  • Finance and growth: theory and evidence
    Levine, R.; Aghion, P.; Durlauf, S.
  • Das kapital
    Marx, K.
  • Das kapital
    Marx, K.
  • How to do xtabond2: an introduction to di_erence and system GMM in stata
    Roodman, D.