Abstract
The 2007 global financial crisis significantly impacted the competitiveness and risk-taking behaviours of banks, thereby influencing their efficiency. This study aims to investigate the impact of post-crisis regulatory reforms, specifically capital and liquidity requirements, on bank efficiency. The research adopts the intermediation approach, viewing banks as intermediators of financial services, to analyse the efficiency of retail banking groups in the UK. The study primarily focuses on the efficiency of US and UK banks, examining the effects of various dimensions of regulatory reforms, including capital and liquidity requirements.
A two-stage analysis is employed: the first stage uses the DEA-based Malmquist Index to measure efficiency changes over time, while the second stage applies fixed and random effect panel regression analysis to identify the factors influencing these efficiency scores. The findings reveal that stringent capital requirements can enhance prudence and stability but may also hinder competition and efficiency. Conversely, liquidity requirements and its components such as the HQLA, have a negative relationship with bank technical efficiency although insignificant. Findings also suggest that banks stand to enhance their efficiency if they decrease their loan loss provisions by reducing the amount of risky loans the hold.
The study's originality lies in its comprehensive analysis of liquidity and capital regulatory impact on bank efficiency in the context of post-crisis reforms, offering valuable insights for policymakers and stakeholders in the banking industry. This research contributes to the ongoing debate on the balance between regulatory stringency and bank performance.
A two-stage analysis is employed: the first stage uses the DEA-based Malmquist Index to measure efficiency changes over time, while the second stage applies fixed and random effect panel regression analysis to identify the factors influencing these efficiency scores. The findings reveal that stringent capital requirements can enhance prudence and stability but may also hinder competition and efficiency. Conversely, liquidity requirements and its components such as the HQLA, have a negative relationship with bank technical efficiency although insignificant. Findings also suggest that banks stand to enhance their efficiency if they decrease their loan loss provisions by reducing the amount of risky loans the hold.
The study's originality lies in its comprehensive analysis of liquidity and capital regulatory impact on bank efficiency in the context of post-crisis reforms, offering valuable insights for policymakers and stakeholders in the banking industry. This research contributes to the ongoing debate on the balance between regulatory stringency and bank performance.
| Original language | English |
|---|---|
| Journal | Cogent Business and Management |
| Publication status | Submitted - 2024 |