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Are European Banks in Economic Harmonay? An HLM Aproach

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  • James P. Gander

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.

Suggested Citation

  • James P. Gander, 2012. "Are European Banks in Economic Harmonay? An HLM Aproach," Working Paper Series, Department of Economics, University of Utah 2012_03, University of Utah, Department of Economics.
  • Handle: RePEc:uta:papers:2012_03
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    File URL: http://economics.utah.edu/research/publications/2012_03.pdf
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. Allen, Franklin & Santomero, Anthony M., 1997. "The theory of financial intermediation," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1461-1485, December.
    4. 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.
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    More about this item

    Keywords

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

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • 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

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