دانلود مقاله ISI انگلیسی شماره 24090
عنوان فارسی مقاله

مقررات بانک، ریسک و بازده: شواهدی از اعتبار و بحران بدهی های مستقل

کد مقاله سال انتشار مقاله انگلیسی ترجمه فارسی تعداد کلمات
24090 2014 65 صفحه PDF سفارش دهید محاسبه نشده
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عنوان انگلیسی
Bank regulation, risk and return: Evidence from the credit and sovereign debt crises
منبع

Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)

Journal : Journal of Banking & Finance, Available online 14 June 2014

کلمات کلیدی
- خطر سیستمیک - ریسک ویژه - بتا - خرید و نگه داشتن بازده - آیین نامه ها
پیش نمایش مقاله
پیش نمایش مقاله مقررات بانک، ریسک و بازده: شواهدی از اعتبار و بحران بدهی های مستقل

چکیده انگلیسی

In this paper, we analyze whether regulation reduced risk during the credit crisis and the sovereign debt crisis for a cross section of global banks. In this regard, we examine distance to default (Laeven and Levine, 2008), systemic risk (Acharya et al., 2010), idiosyncratic risk, and systematic risk. We employ World Bank survey data on regulations to test our conjectures. We find that regulatory restrictions, official supervisory power, capital stringency, along with private monitoring can explain bank risk in both crises. Additionally, we find that deposit insurance schemes enhance moral hazard, as this encouraged banks to take on more risk and perform poorly during the sovereign debt crisis. Finally, official supervision and private monitoring explains the returns during both crisis periods.

مقدمه انگلیسی

Journalists, policymakers, and academics have argued that lenient regulations, reliance on short-term funding, excessive risk taking, and corporate governance failure are responsible for the recent crisis. This paper examines the impact of regulations on the risk and returns of global banks during the credit and sovereign debt crises. We examine an extensive sample of large international banks that are the targets of current regulatory efforts while many of them are considered to be too big to fail by central banks. These banks are characterized by their large capitalization, global activity, cross-border exposure, and/or representative size in the local industry. In this regard, we examine the determinants of distance to default (Laeven and Levine, 2008), systemic risk (marginal expected shortfall [MES] proposed by Acharya et al., 2010), idiosyncratic risk, and systematic risk. There is scant literature examining the impact of bank regulations on bank fragility and risk. Demirgüç-Kunt and Detragiache (2011) use the adherence to the core principles from the Basel Committee on Bank Supervision and show that bank supervision and regulation have very little effect on bank risk. Barth et al. (2004) use the World Bank survey data II and show that countries with higher regulatory restrictions have a higher probability of experiencing a banking crisis. Barth et al. (2013) show that banking restrictions are negatively related to bank efficiency. To the best of our knowledge, no prior studies examine the impact of World Bank regulations on bank risk and return during the recent credit and sovereign debt crises. We fill this gap in the literature and take this opportunity to examine the effectiveness of World Bank regulations in terms of bank risk taking and returns. We use the 2008 World Bank survey on bank regulation data to examine whether lenient regulations were responsible for excessive risk taking by the banks, which led them to perform badly during the crisis (Stiglitz, 2010). The banking regulations survey contains 312 questions on different dimensions, and most of the questions require yes/no type of answers. We form scores for measuring different dimensions and following Beltratti and Stultz (2012) and Pasiouras et al. (2006), we classify the survey questions used into five categories: (1) capital regulations; (2) restrictions on bank activities; (3) official supervisory power; (4) private monitoring; and (5) deposit insurance. We test whether capital regulations, restrictions on bank activities, official supervisory power, private monitoring, and deposit insurance are related to risk and whether they affected the banks’ stock performance during the credit and sovereign debt crises. We perform our tests on a number of different risk measurements. Our first measure of risk is the distance to default (log z), as in Laeven and Levine (2009). Log z measures the distance from bankruptcy (Roy, 1952). Since a large number of banks went bankrupt following the credit and sovereign debt crises, it is imperative and timely to examine whether regulations have any impact on global banks’ distance to default risk during these periods of turmoil. Our second measure of risk is the systemic measure of risk, MES. The use of individual banks’ contribution to systemic risk is relatively new and allows us to test the effects of regulations during the credit and sovereign debt crisis. Most of the earlier empirical work has examined the relationship between regulation and systemic stability by using the incidence of banking crisis at the country level as a measure of systemic risk (e.g., Demirgüç-Kunt and Detragiache, 2002). We examine the impact of regulation on individual banks’ contribution to the overall systemic risk. Our third measure of risk is the idiosyncratic risk of banks. Fahlenbrach et al. (2012) argue that banks have learned from previous financial crises, leading banks to change their behavior and protect themselves from a future financial crisis. In light of the regulatory changes that occurred after the credit crisis, we assess whether banks changed their business models by taking risk more sensibly, as captured by idiosyncratic risk. Our final measure of risk is banks’ systematic risk which is estimated based on the market model. We also examine whether regulations impacted banks’ systematic risk during the credit and sovereign debt crisis. Bank supervisors form their assessments on bank risk based on their proprietary information. However, this information is accessed over infrequent intervals. Moreover, the daily change of market variables reflects bank risk in a timelier manner, but does not fully reflect all the information that is available to supervisors (Berger et al., 2000). Therefore, the information on bank risk, which is inherent in equity market variables, can complement supervisory assessment markets (Gunther et al., 2001, Hall et al., 2001, Elmer and Fissel, 2001 and Curry et al., 2001).To assess whether the market variables explain risk, we include buy-and-hold abnormal return (BHAR) calculated before the credit and sovereign debt crises.1 Since return is the reward for taking risk, we evaluate the impact of regulations on banks’ stock performance. Our results show that restrictions, private monitoring, and deposit insurance explain the distance to default during the credit crisis, while official power and private monitoring had a consistent impact on banks during the sovereign debt crisis. However, we do not find any evidence of deposit insurance having an impact. Following the credit crisis, official supervisory power has a significant impact on banks’ distance to default. This suggests that countries with higher official power could take the necessary corrective actions and strengthen their banking system. Additionally, we find that deposit insurance explains the distance to default during the credit crisis, but not in the sovereign debt crisis. We argue that as sovereign states were affected during the sovereign debt crisis, they were unable to support banks at the time. Hence, banks in countries with deposit insurance schemes have a higher probability to default. Regarding our second risk measurement (MES) we find that activity restrictions and deposit insurance explain MES during the credit and the sovereign debt crisis. Capital restrictions also explain MES but only during the sovereign debt crisis. This is due to the fact that not only Tier I capital requirements have increased, but the quality requirements of capital have also increased. After the credit crisis, there have been significant changes in terms of capital adequacy and stress testing. We find that banks in countries with stricter capital requirements have lower systemic risk contributions. The results on the third risk measurement, idiosyncratic risk, show that with greater official power and in the presence of deposit insurance schemes, banks take more risk resulting in higher idiosyncratic risk during the credit crisis. However, official power is no longer significant during the sovereign debt crisis. We argue that this could be due to the fact that banks became significantly fragile and therefore, regulators could not exert benefits anymore. Finally, we find a positive relationship between deposit insurance and idiosyncratic risk during both crisis periods, reinforcing the view that deposit insurance increases moral hazard. We also examine whether regulations impacted banks’ systematic risk during the credit and sovereign debt crisis. We find that higher official power results in banks having higher systematic risk. This suggests that rent extraction by the regulators is also reflected by market risk. Additionally, banks in countries with higher capital restrictions are more protected in case of financial turmoil, and private monitoring prevents banks from taking riskier decisions, as reflected by a lower systematic risk. These findings hold for both the credit and sovereign debt crises. BHAR is significant in most of the risk regressions, suggesting that market variables reflect bank risk in a timely manner. Hence, regulators should complement their decisions with the information inherent in market variables. Our results have other policy implications. The rest of the paper is organized as follows. In Section 2, we develop the hypotheses. In Section 3, we perform a descriptive analysis of the credit and the sovereign debt crises. Section 4 describes the variables used and employed methodology. Section 5 discusses the data sources and descriptive statistics. Section 6 presents the results on the impact of regulation on risk and returns during the credit and sovereign debt crises. In Section 7, we conduct robustness checks. The conclusions are in Section 8.

نتیجه گیری انگلیسی

The financial crisis that originated in the securitized debt market spread rapidly, affecting all financial institutions to a certain degree, leading to numerous bank rescues and bankruptcies across countries. What is more, according to some commentators, this ignited the sovereign debt crisis. Even though our goal is not the identification of the reasons leading to the financial and sovereign debt crises, the poor bank performance in terms of risk and stock returns during both crises can be a good testing ground for regulation effectiveness. Hence, we shed light on the impact of regulations and regulatory and institutional frameworks. In particular, we analyze whether regulations are effective for bank risk and returns across the world during the credit and sovereign debt crisis periods. The results show that greater official supervision leads to higher systematic risk in banks during both crises. Moreover, official supervision leads to banks being riskier, captured by distance to default, but only during the sovereign debt crisis. We also find evidence that greater capital leads to lower bank risk during both crises, suggesting that banks having enough capital can insulate themselves from financial turmoil. Regarding regulatory restriction, we find that it has no impact on insulating banks during both crises. But we find that restriction leads to better stock performance, but only during the credit crisis. Moreover, we find that having a deposit insurance scheme in place increases moral hazard and induces banks to take greater risks, resulting in greater exposure during both crises. Additionally, we find that greater private monitoring leads to lower bank risk. This suggests that investors actively monitoring banks prevent them from taking excessive risks. Hence, countries with higher private monitoring show a better stock performance during both crises. Our results have several policy implications regarding the effectiveness and design of regulations to better control risk and thus enhance the performance of global banks which are the focal point of regulators. More restrictions on banks increase the stability of global banks and reduce the systemic risk and idiosyncratic risk during the credit crisis. Moreover, restrictions on bank activities seem to be effective for controlling the stability of banks during times of turmoil. However, Barth et al. (2013) show that restrictions reduce efficiency. Hence, policymakers should strive to find the right balance of restrictions for reducing systemic risk without decreasing efficiency. In line with Anginer et al. (2013) we find that deposit insurance is negatively related to bank stability and systemic risk, suggesting that deposit insurance increases moral hazard. This is also consistent with Hovakimian et al. (2003) and Laeven (2002) who show that under weak institutional environments deposit insurance may work detrimentally. Demirguc-Kunt and Kane (2002) also show that a country’s private and public contracting environment is important in deposit-insurance adoption and design .Our findings raise the question: should policy makers rethink the design of deposit insurance as it increases the instability and systemic risk of individual banks? In terms of returns, banks in countries with greater official power, restrictions and private monitoring performed better during the credit crisis. These results suggest that while regulatory restrictions and supervision are necessary, at the same time it is important to have better private monitoring. Hence private monitoring, which is a market mechanism to reward better banks, complements regulatory supervision. Our findings also highlight the need for regulators to access market information in regular intervals to supplement other sources of regulatory information. While official power of supervisors and private monitoring still explain the stock return performance of banks during the sovereign debt crisis, imposing greater restrictions on bank activities does not enhance bank returns. Policymakers need to bear this in mind especially when planning to impose more restrictions on banks while the banking system is still fragile. The results reported in this paper are consistent with the World Bank regulations IV in Barth et al. (2013) who find that some countries have eased the restrictions following the global financial crisis. Moreover, the evidence show that higher official power increases risk-taking during the credit crisis. This is consistent with the rent seeking view of supervisors as they use power to benefit favored voters, attract donations, and extract bribes (Shleifer and Vishny, 1998 and Djankov et al., 2002; and Quintyn and Taylor, 2002). Beck et al. (2006) point out that if bank supervisory agencies have the authority to discipline noncompliant banks, the supervisors might use this power to induce or force banks to allocate credit so as to generate private or political benefits. Our findings raise some concerns regarding the optimal supervisory power of bank regulators. Most of the regulations were effective in controlling risk, apart from deposit insurance which has a detrimental effect on risk. Official power and private monitoring explains the returns during both the crises. Overall, our results can be extended to having policy implications: regulatory restrictions and supervision may be costly and difficult to enforce, but combined with the market’s scrutiny, they reduce the systemic risk, insulate banks from financial distress, and enable banks to provide a stronger stock performance during a crisis.

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