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Do Regulatory and Supervisory Reforms Affect European Bank Stability: Further Evidence from Panel Data

Author

Listed:
  • Hachmi Ben Ameur

    (Groupe INSEEC)

  • Faten Ben Bouheni

    (ISC Paris Business School, France)

  • Abdoulkarim Idi Chefou

    (EDC Paris Business School, France)

  • Fredj Jawadi

    (Université d’Evry Val d’Essonne, France)

Abstract

This paper investigates the impact of regulatory and supervisory reforms on the risk-taking by European banks in the context of the subprime crisis. To this end, we employed data for six European countries (France, Germany, the UK, Spain, Italy and Greece) over the period 2005-2011, applying the Generalized Method of Moments (GMM). Our investigation pointed to three interesting findings. First, in France, Germany and the UK, supervisory power appears to boost banking stability (reduce bank’s risk-taking), while restrictions on banking activities, deposit insurance and capital adequacy encourage risky behavior, confirming the view that a strongly regulated institutional environment encourages risk-taking. Second, tightening regulations and supervision appears to weaken banking stability in Italy, Greece and Spain as, with more supervisory power, the largest banks tend to take greater risks. Third, the strongly regulated institutional environment enhances financial stability in Europe, while European banks with a higher rate of asset growth tend to have higher risk appetite.

Suggested Citation

  • Hachmi Ben Ameur & Faten Ben Bouheni & Abdoulkarim Idi Chefou & Fredj Jawadi, 2016. "Do Regulatory and Supervisory Reforms Affect European Bank Stability: Further Evidence from Panel Data," Bankers, Markets & Investors, ESKA Publishing, issue 141, pages 58-70, March-Apr.
    • Handle: RePEc:rbq:journl:i:141:p:58-70
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    Cited by:

    1. Ben Bouheni, Faten & Hasnaoui, Amir, 2017. "Cyclical behavior of the financial stability of eurozone commercial banks," Economic Modelling, Elsevier, vol. 67(C), pages 392-408.

    More about this item

    Keywords

    European banks; Banking Supervision; Risk-taking; Dynamic Panel;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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