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How macroprudential regulation and board effectiveness interact to shape bank risk-taking behavior

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  • Basty, Nadia
  • Ghazouani, Ines
  • Jeriji, Maher

Abstract

This study aims to investigate how macroprudential policies and corporate governance interact to curb bank risk-taking behavior for a sample of 915 publicly listed commercial banks in 53 countries over the 2011–2020 period. Excessive risk-taking by global financial institutions was singled out during the global financial crisis of 2007–2009. We first use a fixed-effects OLS panel model. Then, to address endogeneity concerns, we apply a two-step system GMM estimation. Our results show that the impact of board attributes on risk-taking depends critically on MPP’s policies. We find that MPPs can enhance the supervisory power of a board characterized by high independence, and a CEO who performs a dual function. However, a large board size appears to increase bank risk when multiple macroprudential policies are in place, which can result in managerial policies that may increase bank risk-taking. The supervisory role of women on the board is only effective in the presence of tight macroprudential policies. Bank regulators should consider the interaction between corporate governance and macroprudential policies when designing more effective bank regulations.

Suggested Citation

  • Basty, Nadia & Ghazouani, Ines & Jeriji, Maher, 2023. "How macroprudential regulation and board effectiveness interact to shape bank risk-taking behavior," Research in International Business and Finance, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:riibaf:v:66:y:2023:i:c:s0275531923001952
    DOI: 10.1016/j.ribaf.2023.102069
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    References listed on IDEAS

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    Cited by:

    1. Li, Hui-Jun & Si, Deng-Kui & Chen, Meng-Long, 2024. "How does macroprudential policy affect the relationship between financial openness and bank risk-taking," Economic Analysis and Policy, Elsevier, vol. 84(C), pages 1820-1839.
    2. Massimo Arnone & Alberto Costantiello & Angelo Leogrande, 2025. "Analyzing Risk Exposure Determinants in European Banking: A Regulatory Perspective," Working Papers hal-04865226, HAL.
    3. repec:osf:osfxxx:2u4jb_v1 is not listed on IDEAS

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    More about this item

    Keywords

    Bank risk-taking; Macroprudential policy; Board attributes; Two-step system GMM;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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