IDEAS home Printed from https://ideas.repec.org/a/eee/finsta/v23y2016icp15-32.html
   My bibliography  Save this article

Does Basel compliance matter for bank performance?

Author

Listed:
  • Ayadi, Rym
  • Naceur, Sami Ben
  • Casu, Barbara
  • Quinn, Barry

Abstract

The global financial crisis underscored the importance of regulation and supervision to a well-functioning banking system that efficiently channels financial resources into investment. In this paper, we contribute to the ongoing policy debate by assessing whether compliance with international regulatory standards and protocols enhances bank operating efficiency. We focus specifically on the adoption of international capital standards and the Basel Core Principles for Effective Bank Supervision (BCP). The relationship between bank efficiency and regulatory compliance is investigated using the Simar and Wilson (2007. J. Econ. 136 (1), 31) double bootstrapping approach on an international sample of publicly listed banks. Our results indicate that overall BCP compliance, or indeed compliance with any of its individual chapters, has no association with bank efficiency.

Suggested Citation

  • Ayadi, Rym & Naceur, Sami Ben & Casu, Barbara & Quinn, Barry, 2016. "Does Basel compliance matter for bank performance?," Journal of Financial Stability, Elsevier, vol. 23(C), pages 15-32.
    • Handle: RePEc:eee:finsta:v:23:y:2016:i:c:p:15-32
    DOI: 10.1016/j.jfs.2015.12.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1572308915001436
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jfs.2015.12.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lozano-Vivas, Ana & Pasiouras, Fotios, 2010. "The impact of non-traditional activities on the estimation of bank efficiency: International evidence," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1436-1449, July.
    2. Kane, Edward J, 1977. "Good Intentions and Unintended Evil: The Case against Selective Credit Allocation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 9(1), pages 55-69, February.
    3. Agoraki, Maria-Eleni K. & Delis, Manthos D. & Pasiouras, Fotios, 2011. "Regulations, competition and bank risk-taking in transition countries," Journal of Financial Stability, Elsevier, vol. 7(1), pages 38-48, January.
    4. Allen N. Berger & Timothy H. Hannan, 1998. "The Efficiency Cost Of Market Power In The Banking Industry: A Test Of The "Quiet Life" And Related Hypotheses," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 454-465, August.
    5. Asli Demirgüč-Kunt & Luc Laeven & Ross Levine, 2004. "Regulations, market structure, institutions, and the cost of financial intermediation," Proceedings, Federal Reserve Bank of Cleveland, pages 593-626.
    6. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2012. "Guardians of Finance: Making Regulators Work for Us," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262017393, December.
    7. Barbara Casu & Philip Molyneux, 2003. "A comparative study of efficiency in European banking," Applied Economics, Taylor & Francis Journals, vol. 35(17), pages 1865-1876.
    8. Barbara Casu & Alessandra Ferrari & Tianshu Zhao, 2013. "Regulatory Reform and Productivity Change in Indian Banking," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 1066-1077, July.
    9. Hughes, Joseph P. & Mester, Loretta J., 2013. "Who said large banks don’t experience scale economies? Evidence from a risk-return-driven cost function," Journal of Financial Intermediation, Elsevier, vol. 22(4), pages 559-585.
    10. Bos, J.W.B. & Schmiedel, H., 2007. "Is there a single frontier in a single European banking market?," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 2081-2102, July.
    11. Pasiouras, Fotios & Tanna, Sailesh & Zopounidis, Constantin, 2009. "The impact of banking regulations on banks' cost and profit efficiency: Cross-country evidence," International Review of Financial Analysis, Elsevier, vol. 18(5), pages 294-302, December.
    12. Cihak, Martin & Demirgüç-Kunt, Asli & Martinez Peria, Maria Soledad & Mohseni-Cheraghlou, Amin, 2013. "Bank regulation and supervision in the context of the global crisis," Journal of Financial Stability, Elsevier, vol. 9(4), pages 733-746.
    13. Demirgüç-Kunt, Asli & Detragiache, Enrica, 2011. "Basel Core Principles and bank soundness: Does compliance matter?," Journal of Financial Stability, Elsevier, vol. 7(4), pages 179-190, December.
    14. Martin S. Feldstein, 1972. "Equity and Efficiency in Public Sector Pricing: The Optimal Two-Part Tariff," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 86(2), pages 175-187.
    15. Delis, Manthos D & Papanikolaou, Nikolaos I, 2009. "Determinants of bank efficiency: Evidence from a semi-parametric methodology," MPRA Paper 13893, University Library of Munich, Germany.
    16. Mr. Udaibir S Das & Mr. Plamen Yossifov & Richard Podpiera & Mr. Dmitriy L Rozhkov, 2005. "Quality of Financial Policies and Financial System Stress," IMF Working Papers 2005/173, International Monetary Fund.
    17. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2004. "Bank regulation and supervision: what works best?," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 205-248, April.
    18. Brissimis, Sophocles N. & Delis, Manthos D. & Papanikolaou, Nikolaos I., 2008. "Exploring the nexus between banking sector reform and performance: Evidence from newly acceded EU countries," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2674-2683, December.
    19. Fotios Pasiouras, 2008. "International evidence on the impact of regulations and supervision on banks’ technical efficiency: an application of two-stage data envelopment analysis," Review of Quantitative Finance and Accounting, Springer, vol. 30(2), pages 187-223, February.
    20. McDonald, John, 2009. "Using least squares and tobit in second stage DEA efficiency analyses," European Journal of Operational Research, Elsevier, vol. 197(2), pages 792-798, September.
    21. Klomp, Jeroen & Haan, Jakob de, 2012. "Banking risk and regulation: Does one size fit all?," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3197-3212.
    22. Demirgüç-Kunt, AslI & Detragiache, Enrica & Tressel, Thierry, 2008. "Banking on the principles: Compliance with Basel Core Principles and bank soundness," Journal of Financial Intermediation, Elsevier, vol. 17(4), pages 511-542, October.
    23. Barth, James R. & Caprio, Gerard, Jr. & Levine, Ross, 2008. "Bank regulations are changing : for better or worse ?," Policy Research Working Paper Series 4646, The World Bank.
    24. Sealey, Calvin W, Jr & Lindley, James T, 1977. "Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions," Journal of Finance, American Finance Association, vol. 32(4), pages 1251-1266, September.
    25. David A Grigorian & Vlad Manole, 2006. "Determinants of Commercial Bank Performance in Transition: An Application of Data Envelopment Analysis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 48(3), pages 497-522, September.
    26. Glass, J. Colin & McKillop, Donal G. & Rasaratnam, Syamarlah, 2010. "Irish credit unions: Investigating performance determinants and the opportunity cost of regulatory compliance," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 67-76, January.
    27. Martin Čihák & Alexander Tieman, 2011. "Quality of Financial Sector Regulation and Supervision Around the World," Chapters, in: Sylvester Eijffinger & Donato Masciandaro (ed.), Handbook of Central Banking, Financial Regulation and Supervision, chapter 15, Edward Elgar Publishing.
    28. Gerard Caprio & James Barth & Ross Levine, 2008. "Bank Regulations Are Changing: But For Better or Worse?," Center for Development Economics 2008-04, Department of Economics, Williams College.
    29. Barth,James R. & Caprio,Gerard & Levine,Ross, 2008. "Rethinking Bank Regulation," Cambridge Books, Cambridge University Press, number 9780521709309.
    30. Richard Podpiera, 2004. "Does Compliance with Basel Core Principles Bring Any Measurable Benefits?," IMF Working Papers 2004/204, International Monetary Fund.
    31. Laeven, Luc & Levine, Ross, 2009. "Bank governance, regulation and risk taking," Journal of Financial Economics, Elsevier, vol. 93(2), pages 259-275, August.
    32. Simar, Leopold & Wilson, Paul W., 2007. "Estimation and inference in two-stage, semi-parametric models of production processes," Journal of Econometrics, Elsevier, vol. 136(1), pages 31-64, January.
    33. Merrouche, Ouarda & Nier, Erlend, 2014. "The Global Financial Crisis?What Drove The Build-Up?," CEPR Discussion Papers 10015, C.E.P.R. Discussion Papers.
    34. Mr. Dewitt D Marston, 2001. "Financial System Standards and Financial Stability: The Case of the Basel Core Principles," IMF Working Papers 2001/062, International Monetary Fund.
    35. Barth, James R. & Lin, Chen & Ma, Yue & Seade, Jesús & Song, Frank M., 2013. "Do bank regulation, supervision and monitoring enhance or impede bank efficiency?," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2879-2892.
    36. George Battese & D. Rao & Christopher O'Donnell, 2004. "A Metafrontier Production Function for Estimation of Technical Efficiencies and Technology Gaps for Firms Operating Under Different Technologies," Journal of Productivity Analysis, Springer, vol. 21(1), pages 91-103, January.
    37. Adnan Kasman & Canan Yildirim, 2006. "Cost and profit efficiencies in transition banking: the case of new EU members," Applied Economics, Taylor & Francis Journals, vol. 38(9), pages 1079-1090.
    38. James R Barth & Gerard Caprio & Ross Levine, 2008. "Bank Regulations are Changing: For Better or Worse?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 50(4), pages 537-563, December.
    39. Brissimis, Sophocles N. & Delis, Manthos D. & Papanikolaou, Nikolaos I., 2008. "Exploring the nexus between banking sector reform and performance: Evidence from newly acceded EU countries," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2674-2683, December.
    40. Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 619-632, Nov.-Dec..
    41. Banker, Rajiv D. & Cummins, J. David & Klumpes, Paul J.M., 2010. "Performance measurement in the financial services sector: Frontier efficiency methodologies and other innovative techniques," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1413-1416, July.
    42. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
    43. Peter Bogetoft & Lars Otto, 2011. "Benchmarking with DEA, SFA, and R," International Series in Operations Research and Management Science, Springer, number 978-1-4419-7961-2, September.
    44. Fries, Steven & Taci, Anita, 2005. "Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 55-81, January.
    45. Chortareas, Georgios E. & Girardone, Claudia & Ventouri, Alexia, 2012. "Bank supervision, regulation, and efficiency: Evidence from the European Union," Journal of Financial Stability, Elsevier, vol. 8(4), pages 292-302.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chortareas, Georgios E. & Girardone, Claudia & Ventouri, Alexia, 2012. "Bank supervision, regulation, and efficiency: Evidence from the European Union," Journal of Financial Stability, Elsevier, vol. 8(4), pages 292-302.
    2. Pérez-Cárceles, María Concepción & Gómez-García, Juan & Gómez Gallego, Juan Cándido, 2019. "Goodness of governance effect on European banking efficiency," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 29-40.
    3. Salma Louati & Younes Boujelbene, 2021. "Basel Regulations and Banks’ Risk-efficiency Nexus: Evidence from Dynamic Simultaneous-equation Models," Journal of African Business, Taylor & Francis Journals, vol. 22(4), pages 578-602, October.
    4. Psillaki, Maria & Mamatzakis, Emmanuel, 2017. "What drives bank performance in transitions economies? The impact of reforms and regulations," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 578-594.
    5. Mavrakana, Christina & Psillaki, Maria, 2019. "Do economic freedom and board structure matter for bank stability and bank performance?," MPRA Paper 95709, University Library of Munich, Germany.
    6. Kaliyev Kalizhan Sagatbekovich & Mira Nurmakhanova, 2021. "Bank Regulation in the Economies in Transition," SAGE Open, , vol. 11(4), pages 21582440211, November.
    7. Djalilov, Khurshid & Piesse, Jenifer, 2019. "Bank regulation and efficiency: Evidence from transition countries," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 308-322.
    8. Said-Nour Samake, 2022. "Prudential Regulation and Bank Efficiency : Evidence from WAEMU Zone," Working Papers hal-03540209, HAL.
    9. Mohammad Bitar & Sami Ben Naceur & Rym Ayadi & Thomas Walker, 2021. "Basel Compliance and Financial Stability: Evidence from Islamic Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 60(1), pages 81-134, August.
    10. Gaganis, Chrysovalantis & Galariotis, Emilios & Pasiouras, Fotios & Staikouras, Christos, 2020. "Bank profit efficiency and financial consumer protection policies," Journal of Business Research, Elsevier, vol. 118(C), pages 98-116.
    11. Mai, Nhat Chi, 2015. "Efficiency of the banking system in Vietnam under financial liberalization," OSF Preprints qsf6d, Center for Open Science.
    12. Wang, Mingzhu & Sun, Xiaojie, 2019. "Identity of large owner, regulation and bank risk in developing countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 59(C), pages 106-133.
    13. Liang, Lien-Wen & Dash Altankhuyag, 2019. "Impact of Banking Supervision on the Cost-Efficiency of Banks: A Study of Five Developing Asian Countries," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(2), pages 213-231, February.
    14. Gaganis, Chrysovalantis & Liu, Liuling & Pasiouras, Fotios, 2015. "Regulations, profitability, and risk-adjusted returns of European insurers: An empirical investigation," Journal of Financial Stability, Elsevier, vol. 18(C), pages 55-77.
    15. Lozano-Vivas, Ana & Pasiouras, Fotios, 2010. "The impact of non-traditional activities on the estimation of bank efficiency: International evidence," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1436-1449, July.
    16. Francesco Aiello & Graziella Bonanno, 2018. "On The Sources Of Heterogeneity In Banking Efficiency Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 32(1), pages 194-225, February.
    17. Manlagnit, Maria Chelo V., 2015. "Basel regulations and banks’ efficiency: The case of the Philippines," Journal of Asian Economics, Elsevier, vol. 39(C), pages 72-85.
    18. Bitar, Mohammad & Pukthuanthong, Kuntara & Walker, Thomas, 2018. "The effect of capital ratios on the risk, efficiency and profitability of banks: Evidence from OECD countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 53(C), pages 227-262.
    19. Hall, Maximilian J.B. & Kenjegalieva, Karligash A. & Simper, Richard, 2012. "Environmental factors affecting Hong Kong banking: A post-Asian financial crisis efficiency analysis," Global Finance Journal, Elsevier, vol. 23(3), pages 184-201.
    20. repec:zbw:bofrdp:2011_007 is not listed on IDEAS
    21. Kalyvas, Antonios Nikolaos & Mamatzakis, Emmanuel, 2014. "Does business regulation matter for banks in the European Union?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 278-324.

    More about this item

    Keywords

    BCP; Efficiency; Regulatory Compliance;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finsta:v:23:y:2016:i:c:p:15-32. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jfstabil .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.