Essays on efficiency, stability, governance, and regulations in financial institutions

Abstract

The thesis takes into consideration the influences of financial regulation and supervision and assesses the banking system from two key aspects: banking stability and banking efficiency. Concerning stability, the thesis considers two subjects. The first subject deals with the determinant of the capital adequacy ratio in exporting oil countries, particularly in the case of Gulf Cooperation Council (GCC) countries. The second focuses on examining the impacts of financial regulations and supervision on bank stability, taking into account bank business models, bank size, and economic development. In the context of efficiency, the research sheds light on whether financial regulations and supervision contribute towards enhancing or impeding efficiency across countries and different economic blocs. The first empirical chapter (chapter 2) has investigated how the GCC oil-rich countries’ banks set their capital adequacy and examined how capital adequacy responds to changes in micro, macro, and market contestability indicators, using panel data for 89 commercial banks in 6 GCC countries over the period 1998–2013. We employed the estimator of generalized method of moments in this study. The results reveal that most of the market contestability indicators together with loans are primary sources of risks and positively affect the capital adequacy ratio. The second empirical study (chapter 3) has attempted to explore whether financial regulations and supervision enhance or impede bank efficiency. The study has applied the Semi-Oriented Radial Measure (SORM) using a Data Envelopment Analysis (DEA) to capture efficiency levels across 7853 banks in 102 countries over the period 2000–2014. We contribute to this study by examining the influence of financial regulations and supervision on operational efficiency, captured through SORM, across regional economic blocs, income groups, and financial crisis. We find that financial regulations and supervision are multifaceted concepts due to sizeable variations of their impact on efficiency across economic blocs and income groups. Finally, the third empirical study (chapter 4) has re-evaluated the stability levels across 2210 banks in 47 countries over the period 2000-2016 through an innovative CAMELS-DEA rating system. This study contributes towards investigating the influence of regulations and supervision on bank stability by taking into account bank business models, size, and economic development by using the quantile approach. The result emphasizes that financial regulations, in general, and supervision, particularly, are multifaceted concepts. Thus, regulations and supervision might have a positive or negative effect on stability due to variations in bank business models, bank size, and economic development.