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Macro-Prudential Regulation, Monetary Policy and Systemic Banking Crises in Africa

In: The Economics of Banking and Finance in Africa

Author

Listed:
  • Joshua Yindenaba Abor

    (University of Ghana Business School, Legon)

  • Daniel Ofori-Sasu

    (Central University, Miotso)

  • Joseph G. Nellis

    (Cranfield School of Management)

  • Christopher J. Green

    (Loughborough University)

Abstract

This study examines how macro-prudential regulation is related to the predicted probability of systemic banking crises. Given a wide range of regulatory frameworks across different economies and their complex relationships, we investigate how monetary policy stance affects the link between measures of macro-prudentialMacro-prudential regulation and banking crises. Using a panel logit regression of 532 banks in 29 African countries over the period, 2006–2018, we confirm that macro-prudential regulation and monetary policy play significant roles in reducing the probability of systemic banking crises. We also find evidence to support that tightening monetary policy alters the negative effect of macro-prudential policy action on systemic banking crises, and that a tight monetary policy stance magnifies the negative effects of both countercyclical capital requirement and reserve requirement on systemic banking crises. Interestingly, the interaction effect between measures of macro-prudentialMacro-prudential regulation and monetary policy in reducing systemic banking crises seems to favour countries with strong institutions compared to those with weak institutions.

Suggested Citation

  • Joshua Yindenaba Abor & Daniel Ofori-Sasu & Joseph G. Nellis & Christopher J. Green, 2022. "Macro-Prudential Regulation, Monetary Policy and Systemic Banking Crises in Africa," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Joshua Yindenaba Abor & Charles Komla Delali Adjasi (ed.), The Economics of Banking and Finance in Africa, chapter 0, pages 659-709, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-031-04162-4_20
    DOI: 10.1007/978-3-031-04162-4_20
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