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Interrelationship Among Basel Capital Regulation, Risk, and Efficiency in Pakistani Commercial Banks

Author

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  • Adnan Bashir

    (Capital University of Science and Technology, Islamabad)

  • Arshad Hassan

    (Capital University of Science and Technology, Islamabad)

Abstract

This study examines the interrelationship among Basel capital regulations, risk, and efficiency of Pakistani commercial banks from 1997-2015. It uses the Generalized Method of Moments (GMM) technique from beginning of capital regulation in 1997 to 2015. We find that bank capital regulation reduces the bank risk. As far as the impact of capital regulation on bank efficiency is concerned, it reduces the bank efficiency. Our results also indicate that the effect of capital regulation on bank risk and cost efficiency is different for each of the Basel accords. Moreover, Basel II was more successful than Basel I in reducing the risk taken by banks, while its impact on the cost efficiency of banks was negligible.

Suggested Citation

  • Adnan Bashir & Arshad Hassan, 2017. "Interrelationship Among Basel Capital Regulation, Risk, and Efficiency in Pakistani Commercial Banks," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(2), pages 165-186, June.
    • Handle: RePEc:bec:imsber:v:9:y:2017:i:2:p:165-186
    DOI: dx.doi.org/10.22547/BER/9.2.7
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    References listed on IDEAS

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    Cited by:

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    2. Mateev, Miroslav & Nasr, Tarek & Sahyouni, Ahmad, 2022. "Capital regulation, market power and bank risk-taking in the MENA region: New evidence for Islamic and conventional banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 134-155.
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    4. Mateev, Miroslav & Moudud-Ul-Huq, Syed & Sahyouni, Ahmad & Tariq, Muhammad Usman, 2022. "Capital regulation, competition and risk-taking: Policy implications for banking sector stability in the MENA region," Research in International Business and Finance, Elsevier, vol. 60(C).

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    More about this item

    Keywords

    Bank-risk taking; bank efficiency; capital regulation;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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