The impact of bank regulations, supervision, market structure, and bank characteristics on individual bank ratings: A cross-country analysis

The impact of bank regulations, supervision, market structure, and bank characteristics on... We use country level data and bank level data from 71 countries and 857 banks to investigate the impact of bank regulations, supervision, market structure, and bank characteristics on individual bank ratings. The results indicate that less cost efficient banks, with higher than average levels of provisions relatively to their income, and lower liquidity tend to have lower ratings. Larger and more profitable banks tend to obtain higher ratings. Higher equity to assets ratio results in higher ratings only when we do not control for bank supervision and regulations. Capital requirements, restrictions on bank activities, official disciplinary power, explicit deposit insurance scheme, higher deposit insurer power, liquidity and diversification guidelines, entry requirements, fraction of entries denied, and economic freedom have a significant impact on ratings in all of our specifications. Disclosure requirements and foreign banks entry have a significant impact on ratings only when we simultaneously control for the regulatory environment and the market structure, while auditing requirements have a significant impact only when we control for the regulatory environment alone. Finally, banks in developed countries are assigned higher ratings. However, this impact disappears when we include the regulatory and supervision variables in the models. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

The impact of bank regulations, supervision, market structure, and bank characteristics on individual bank ratings: A cross-country analysis

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2006 by Springer Science + Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-006-0045-0
Publisher site
See Article on Publisher Site

Abstract

We use country level data and bank level data from 71 countries and 857 banks to investigate the impact of bank regulations, supervision, market structure, and bank characteristics on individual bank ratings. The results indicate that less cost efficient banks, with higher than average levels of provisions relatively to their income, and lower liquidity tend to have lower ratings. Larger and more profitable banks tend to obtain higher ratings. Higher equity to assets ratio results in higher ratings only when we do not control for bank supervision and regulations. Capital requirements, restrictions on bank activities, official disciplinary power, explicit deposit insurance scheme, higher deposit insurer power, liquidity and diversification guidelines, entry requirements, fraction of entries denied, and economic freedom have a significant impact on ratings in all of our specifications. Disclosure requirements and foreign banks entry have a significant impact on ratings only when we simultaneously control for the regulatory environment and the market structure, while auditing requirements have a significant impact only when we control for the regulatory environment alone. Finally, banks in developed countries are assigned higher ratings. However, this impact disappears when we include the regulatory and supervision variables in the models.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Jan 1, 2006

References

  • The determinants of credit ratings in the United Kingdom Insurance Industry
    Adams, M; Burton, B
  • Bank regulation and supervision: What works best?
    Barth, JR; Caprio G, Jr; Levine, R
  • Bank safety and soundness and the structure of bank supervision: A cross-country analysis
    Barth, JR; Dopico, LG; Nolle, DE; Wilcox, JA

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