Does the ownership structure matter for banks’ capital regulation and risk-taking behavior? Empirical evidence from a developing country

This paper applies the two-stage least squares (2SLS) estimator to examine the bi-directional relationship between banks’ capital regulation and risk-taking behavior concerning the impact of ownership structure. We have used a balanced panel dataset of banks from a developing country over the most recent period between 2006 and 2014. The empirical findings of this study suggest that higher capital regulation enhances banks’ stability when it combats with credit risk but higher credit risk often persuades abating capital ratio. Particularly, the key results are as follows: (i) the higher association of minority active shareholding in stability issues is positive; (ii) the higher contribution of active share holding promotes banks’ capital ratio; (iii) the lower ownership concentration prevents credit risk; (iv) private commercial banks are more risk averse and stable than state-owned banks and other type of banks; and (v) notably, Islamic banks show their superiority through overall performance despite their lower capital stability than conventional banks. Besides, no models show significant non-linear relationship between capital regulation and risk-taking except models of stability show a U-shaped relation in capital equation, indicating that when regulatory pressure works in a country then bank lose solvency at the initial stage. Finally, it also provides some imperative policy implications which will be very useful for a wide range of stakeholders.     

公司治理、资本监管与银行风险承担

选取2007-2017年中国25家上市银行数据,采用面板回归模型对公司治理与资本监管对银行风险承担的影响进行实证分析。研究表明：股权集中度与银行风险承担之间呈正U型关系,较低的股权集中度会降低银行风险资产配置权重,股权集中度的提升会加大银行风险承担。董事会规模会促进银行风险承担,董事会规模过大将平滑单个董事表决权,导致董事会控制效率下降而引发银行经营决策频繁变动,由此加大银行风险承担。资本监管会抑制银行风险承担,资本监管的趋严促使银行减持风险资产进行资本补充;资本监管对股份制银行、国有大型银行与城农商银行风险承担的影响力度依次递减。货币供给增速的放缓将降低银行存款吸收能力,由此加大银行流动性风险,货币供给对银行信贷存在制约效应;经济增速的下调将降低企业盈利能力,由此加大银行风险承担,银行存在顺周期放贷倾向。     

Value-at-risk vs. building block regulation in banking

Existing regulatory capital requirements are often criticized for only being loosely linked to the economic risk of the banks' assets. In view of the attempts of international regulators to introduce more risk sensitive capital requirements, we theoretically examine the effect of specific regulatory capital requirements on the risk-taking behavior of banks. More precisely, we develop a continuous time framework where the banks' choice of asset risk is endogenously determined. We compare regulation based on the Basel I building block approach to value-at-risk or ‘internal model’-based capital requirements with respect to risk taking behavior, deposit insurance liability, and shareholder value. The main findings are: (i) value-at-risk-based capital regulation creates a stronger incentive to reduce asset risk when banks are solvent, (ii) solvent banks that reduce their asset risk reduce the current value of the deposit insurance liability significantly, (iii) under value-at-risk regulation the risk reduction behavior of banks is less sensitive to changes in their investment opportunity set, and (iv) banks' equityholders can benefit from risk-based capital requirements.     

Efficiency and Risk-Taking in Pre-Crisis Investment Banks

Investment banks’ core functions expose them to a wide array of risks. This paper analyses cost and profit efficiency for a sample of investment banks for the G7 countries (Canada, France, Germany, Italy, Japan, UK and US) and Switzerland prior to the recent financial crisis. We follow Coelli et al. (J Prod Anal 11:251–273, 1999)’s methodology to adjust the estimated cost and profit efficiency scores for environmental influences including key banks’ risks, bank- and industry- specific factors and macroeconomic conditions. Our evidence suggests that failing to account for environmental factors can considerably bias the efficiency scores for investment banks. Specifically, bank risk-taking factors (including liquidity and capital risk exposures) are found particularly important to accurately assess profit efficiency: i.e. profit efficiency estimates are consistently underestimated without accounting for bank risk-taking. Interestingly, our evidence suggests that size matters for both cost and profit efficiency, however this does not imply that more concentrated markets are more efficient.     

我国货币政策风险承担渠道存在吗？--基于GMM方法的实证研究

本文收集了2004—2013年我国45家商业银行的微观数据和相关宏观数据,并运用差分GMM回归方法对我国货币政策风险承担渠道的存在性做了实证检验。研究结果表明：我国的货币政策风险承担渠道确实存在,且宽松的货币政策会刺激银行承担更多的风险;价格型货币政策工具对银行风险承担的影响大于数量型货币政策工具;银行的规模大小、盈利水平和资本充足性与银行风险承担呈反比;人均GDP增长率、银行业竞争性与银行风险承担呈正比。     

存款保险制度能否抑制银行个体风险承担?

基于2008-2019年我国30家上市银行的财务数据,研究了存款保险制度实施对银行风险承担行为的影响.对选取的经济变量进行单位根检验发现,变量均为平稳变量.利用固定效应模型进行实证回归分析,结果表明:总体上看,存款保险制度的推出增加了银行的风险承担行为;在将银行进行分类后,存款保险制度的实施对大型商业银行的风险承担影响...     

The role of strategic interactions in risk-taking behavior: A study from asset growth perspective

This study uses panel data on Vietnamese commercial banks from 2008 to 2018 in order to investigate the role of strategic interactions in determining bank risk-taking behavior by considering bank asset growth. The results suggest that aggressive competition is less favorable for banks striving for stability and that a high value of competitive strategy measure (as a proxy for strategic interactions) encourages risk-taking incentives. We also find that the distributional effects of strategic interaction on bank risk-taking because of asset growth reveal that the uncertainty in strategic-interaction-driven profits diminishes in banks with higher growth. This finding is consistent with the idea that when competition becomes more aggressive, bank restructuring should focus on increasing total assets by merging and acquiring small- and medium-sized banks to stabilize the banking sector. Furthermore, the results demonstrate that banks with low leverage or under regulatory pressure engage in more risk-taking. Therefore, policymakers may not implement a tighter capital requirement that contributes to a heightened level of risk. The results are robust to alternative measures of risk-taking and monetary policy stance as well as different econometric specifications.     

Government guarantees of loans to small businesses: Effects on banks’ risk-taking and non-guaranteed lending

We analyzed the loan guarantees that the Japanese government provided for banks’ loans to small and medium-sized enterprises (SMEs). We modeled and estimated how much and under what conditions loan guarantees affected banks’ risk-taking and banks’ non-guaranteed lending.In the presence of controls for bank capital and other factors that might affect supplies of bank credit, our estimates supported our model's implications that loan guarantees increased banks’ risk-taking.Consistent with our model, our estimates imply that, when banks initially had fewer guaranteed loans and then got more guaranteed loans, guaranteed loans were complements to, rather than substitutes for, non-guaranteed loans. As complements, loan guarantees could be “high-powered” in that they generated increases not only in guaranteed loans, but also increases in non-guaranteed loans that were a multiple of the increases in guaranteed loans. In addition, banks’ having more capital was associated with doing more non-guaranteed lending.     

Interest rates and bank risk-taking

A recent line of research views the low interest-rate environment of the early to mid 2000s as an element that triggered increased risk-taking appetite of banks in search for yield. This paper uses approximately 18000 annual observations on euro area banks over the period 2001-2008 and presents strong empirical evidence that low-interest rates indeed increase bank risk-taking substantially. This result is robust across a number of different specifications that account, inter alia, for the potential endogeneity of interest rates and/or the dynamics of bank risk. Notably, among the banks of the large euro area countries this effect is less pronounced for French institutions, which held on average a relatively low level of risk assets. Finally, the distributional effects of interest rates on bank risk-taking due to individual bank characteristics reveal that the impact of interest rates on risk assets is diminished for banks with higher equity capital and is amplified for banks with higher off-balance sheet items.     

Quantifying and explaining parameter heterogeneity in the capital regulation-bank risk nexus

By examining the impact of capital regulation on bank risk-taking using a local estimation technique, this paper attempts to quantify for the first time the heterogeneous response of banks towards this type of regulation in banking sectors of western-type economies. Subsequently, using this information, we examine the sources of heterogeneity. The findings suggest that the impact of capital regulation on bank risk is very heterogeneous across banks and the sources of this heterogeneity can be traced into both bank and industry characteristics, as well as into macroeconomic conditions. An important implication of the findings is that common capital regulatory umbrellas are not sufficient to promote financial stability, especially if they are not accompanied by supervisory effectiveness. On the basis of our findings, we contend that more focus should be placed on the actions needed to restrain excessive risk-taking of banks.     

Fintech,macroprudential policies and bank risk: Evidence from China

We explore the relationship between fintech, macroprudential policies, and commercial bank risk-taking. Based on system generalized method of moment modeling on a panel data of 114 commercial banks in China from 2013 to 2020, results show that there are functional differences in the impact of fintech on bank risk-taking. Payment and settlement technology (PST), capital raising technology (CRT) and investment management technology (IMT) are positively correlated with bank risk-taking. In contrast, market facility technology (MFT) negatively correlates with bank risk-taking. We also find that macroprudential policies weaken the promotion effect of CRT on bank risk-taking and strengthen the inhibition effect of MFT on bank risk-taking while having no significant moderating effect on PST and bank risk, IMT and bank risk. Further, the micro characteristics of banks (capital adequacy ratio, asset scale, liquidity level) affects the moderating strength of macroprudential policies. Various robustness tests confirm our conclusions.     

The impact of state and foreign ownership on banking risk: Evidence from the MENA countries

This paper investigates the impact of foreign and state ownership on banking risk. Panel data regression analysis is applied to a sample of 171 commercial banks from the MENA region during the 2006–2012 period. Two-stage least-squares analysis is conducted. Our results show that State ownership encourages banks to take more risks while foreign ownership reduces risk-taking. In addition, state-owned banks tend to increase capital adequacy ratio to hedge against high level of risk. Our finding also indicates that all categories of shareholders take a prudent attitude that influences risk reduction after the 2008 crisis.     

风险承担、净息差趋势与银行稳定发展研究——基于2009-2019年商业银行面板数据的实验证据

基于Ho和Saunders的做市商模型,引入监管资本约束,优化调整净息差理论模型,定量解释风险承担与净息差及银行稳定机制。运用线性回归模型及其辅助分析方法,依据30家银行2009—2019年面板数据,考量风险承担、净息差趋势与银行稳定发展的实验证据。结果显示：风险承担与净息差呈现倒“U”形关系;区域经济市场化程度对促进银行发展具有稳定效应,风险承担能力对优化净息差区间存在规模效应。鉴于此,银行应加强风险承担与净息差趋势管理,充分运用市场机制配置信贷资源服务实体经济,积极完善银行治理,提高发展的稳定性。     

Effects of Deposit Insurance Reform on Moral Hazard in US Banking

In cross sections of US banks before the deposit-insurance system was reformed in the early 1990s, bank risk-taking was positively associated with bank size and negatively associated with the value of bank charters and bank capital. These empirical associations have an easy theoretical interpretation. Bank size is positively related, while charter value and capital are negatively related, to the moral hazard associated with flat insurance premiums and other aspects of a laxly administered system. Hence the observed associations of risk-taking with size, charter value, and capital reflected the expected positive relation between moral hazard and risk-taking. We test the hypothesis that the three associations became weaker after reform. In the case of unsystematic risk, we find no evidence of significant changes for any of the three. In the case of systematic risk, we find that risk-taking associated with lower charter values and larger size is indeed significantly weaker after reform. Risk-taking associated with capital ratios is also weaker after reform, though not significantly so. Since systematic risk is undoubtedly the more appropriate measure, reform seems to have reduced moral hazard.     

Incentive-Based Lending Capacity,Competition and Regulation in Banking

This paper studies moral hazard in banking due to delegated monitoring in an environment of aggregate risk and examines its implications for credit market equilibrium and regulation, in a model where banks are price competitors for loans and deposits. It provides a rationale for an incentive-based lending capacity positively linked to the bank's capital and profit margin, for an oligopolistic market structure wherever banks have market power, and for capital requirements. Social-welfare-maximizing capital requirements are lowered in recessions, are higher the more fragmented the banking sector, and are increased when anti-competitive measures are removed. In equilibrium banks earn excessive profits and credit may be rationed. Journal of Economic Literature Classification Numbers: D82, G28, L13.     

货币政策与银行风险承担

本文从货币政策影响银行风险承担的作用机理入手,总结了风险定价模型效应、逐利锦标赛效应、思维定势效应和中央银行沟通反馈效应等四条货币政策对银行风险承担影响的渠道,并以2004~2010年中国16家上市银行的数据为样本,采用系统广义矩估计方法实证分析中国货币政策对银行风险承担的影响。实证分析结果表明:我国货币政策与银行风险呈负相关关系,即宽松的货币政策鼓励了银行的风险承担;随着存款利率水平和存款准备金率的降低,银行的风险承担提高;同时中国银行的风险承担与GDP的增长呈正相关关系,即具有显著顺周期特征。     

Financial crisis and bank executive incentive compensation

We study the executive compensation structure in 14 of the largest U.S. financial institutions during 2000–2008. We focus on the CEO's purchases and sales of their bank's stock, their salary and bonus, and the capital losses these CEOs incur due to the dramatic share price declines in 2008. We consider three measures of risk-taking by these banks. Our results are mostly consistent with and supportive of the findings of Bebchuk, Cohen and Spamann (2010), that is, managerial incentives matter — incentives generated by executive compensation programs are correlated with excessive risk-taking by banks. Also, our results are generally not supportive of the conclusions of Fahlenbrach and Stulz (2011) that the poor performance of banks during the crisis was the result of unforeseen risk. We recommend that bank executive incentive compensation should only consist of restricted stock and restricted stock options — restricted in the sense that the executive cannot sell the shares or exercise the options for two to four years after their last day in office. The above incentive compensation proposal logically leads to a complementary proposal regarding a bank's capital structure, namely, banks should be financed with considerably more equity than they are being financed currently.     

Borrowers under water! Rare disasters,regional banks,and recovery lending

We show that local banks provide corporate recovery lending to firms affected by adverse regional macro shocks. Banks that reside in counties unaffected by the natural disaster that we specify as macro shock increase lending to firms inside affected counties by 3%. Firms domiciled in flooded counties, in turn, increase corporate borrowing by 16% if they are connected to banks in unaffected counties. We find no indication that recovery lending entails excessive risk-taking or rent-seeking. However, within the group of shock-exposed banks, those without access to geographically more diversified interbank markets exhibit more credit risk and less equity capital.     

Why European Banks Are Undercapitalized and What Should Be Done About It

Major European banks are significantly undercapitalized as compared to large American banks, and, more importantly, as compared to the capital levels they would need to survive another severe financial crisis. Bank capital shortfalls in Italy, Spain, Germany, France and the United Kingdom, in particular, are largely the consequence of European bank regulations that: (1) apply static risk weights to assets like mortgages and sovereign debt; (2) fail to require an overall market‐based capital ratio that is high enough to enable banks to survive a severe financial crisis; (3) fail to get banks to promptly write down their impaired assets to market value; (4) subject banks to weak stress tests that can create a false impression of capital adequacy; and (5) fail to compel banks to retain sufficient earnings and to raise sufficient capital externally to eliminate capital shortfalls promptly, all apparently out of fear that being tougher might cause investors and customers to lose confidence in the banks. This article summarizes important recent independent bank stress testing that has quantified the capital shortfalls in European banks. The recent highly publicized regulatory interventions to resolve failing European banks were inevitable due to these shortfalls. The authors recommend steps European bank regulators should take to address the problem and to eliminate the risk of serious capital shortfalls. In the absence of such steps, bank depositors, customers, and security holders should be prepared to expect further unwelcome surprises as the risks inherent in allowing undercapitalized banks to operate will continue to materialize in more bank failures.     

The effect of TARP on bank risk-taking

One of the largest responses of the US government to the recent financial crisis was the Troubled Asset Relief Program (TARP). TARP was originally intended to stabilize the financial sector through the increased capitalization of banks. However, recipients of TARP funds were then encouraged to make additional loans despite increased borrower risk. In this paper, we consider the effect of the TARP capital injections on bank risk-taking by analyzing the risk ratings of banks’ commercial loan originations during the crisis. The results indicate that, relative to non-TARP banks, the risk of loan originations increased at large TARP banks but decreased at small TARP banks. Loan levels also moved in different directions for large and small banks and, in supporting evidence, these effects are evaluated based on loan size and TARP repayment. For large banks, the increase in risk-taking without an increase in lending is suggestive of moral hazard due to government support. These results may also be due to the conflicting goals of the TARP program for bank recapitalization and bank lending.