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Are European Banks in Economic Harmonay? An HLM Aproach

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  • James P. Gander
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    Abstract

    A reduced-form equation relating the log of the capital account ratio to several micro and macro variables, particularly the profitability variable, for the commercial banks in nine European countries over eleven years, 1991-2001, was constructed. The equation consisted of a fixed-effects part and a random-effects part. The Hierarchical Linear Model (HLM) approach was used to test the harmonization hypothesis relating the capital account ratio to the profit rate across the countries and over the years. The statistical results indicated that while some differences in bank behavior as indicated by the intercept and slope deviations across countries and over years did exist, by and large, most of the differences or deviations from the fixed-effects means were not significantly different from zero. The harmonization hypothesis was accepted. European bank behavior gave evidence of being in harmony and uniform over countries and years. Some policy implications are discussed briefly.

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    File URL: http://economics.utah.edu/publications/2012_03.pdf
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    Bibliographic Info

    Paper provided by University of Utah, Department of Economics in its series Working Paper Series, Department of Economics, University of Utah with number 2012_03.

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    Length: 13 pages
    Date of creation: 2012
    Date of revision:
    Handle: RePEc:uta:papers:2012_03

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    Keywords: Bank behavior; Profit; Capital account ratios; Harmonization JEL Classification: C23; C40; C51; G21; G28;

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    1. Dong, Minyue & Stettler, Alfred, 2011. "Estimating firm-level and country-level effects in cross-sectional analyses: An application of hierarchical modeling in corporate disclosure studies," The International Journal of Accounting, Elsevier, vol. 46(3), pages 271-303, September.
    2. Singer, David Andrew, 2004. "Capital Rules: The Domestic Politics of International Regulatory Harmonization," International Organization, Cambridge University Press, vol. 58(03), pages 531-565, July.
    3. Jokipii, Terhi & Milne, Alistair, 2008. "The cyclical behaviour of European bank capital buffers," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1440-1451, August.
    4. Franklin Allen & Anthony M. Santomero, 1996. "The Theory of Financial Intermediation," Center for Financial Institutions Working Papers 96-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
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