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This paper considers credit procyclicality processes for Spanish deposit institutions using the macro- and micro-prudential methods for the period from 1984 to 2009. The macro-prudential method proposed by Basel III is applied first in order to identify credit cycles and act as a criterion for establishing counter-cyclical capital buffer requirements. Two expansive credit cycles are thus detected, both of which are indeed followed by financial instability problems. In addition, a micro-prudential approach is applied to analyse the effects of the credit policy of banks on the results obtained during each of the two credit cycles. Processes of procyclicality at the level of financial institutions are detected for the first credit cycle, while for the second evidence is presented to support the idea that statistical provision proved effective in the early years of the crisis. These findings are important for designing prudential policies aimed at preventively monitoring and fostering stability in the banking sector.

One of the most innovative features of Basel III was the introduction of a new 'countercyclical' regulatory dimension for banks. In 2013, this dimension was operationalised in the European prudential framework included in the CRR/CRD IV package. Although the uniform implementation of these rules has been welcomed by the European legislator as creating a level playing field for banks and investment firms, this legal analysis reveals the existence of serious competitive disadvantages for small local and regional banks. While the largest entities are incentivised to exploit the arbitrage opportunities hidden in the CRR/CRD IV countercyclical provisions, such opportunities are not available to smaller entities. Thus, the unintended result of the new prudential framework seems to be not only a re-sizing of the banking balance sheets, but also a re-composition of the banking structures. In this paper, one of the building blocks of the Legal Theory of Finance, i.e., the construction of finance as a legal by-product is taken as a point of departure to show how the adoption of the new countercyclical rules paves the way for a new consolidation wave in the banking industry.

I analyse the effects of two macroprudential policy measures implemented in Switzerland: the activation of the countercyclical capital buffer (CCyB) and a cap on the loan-to-value (LTV) ratios. I use a difference-in-differences method to estimate the effects of these measures on risk indicators, such as their LTV and loan-to-income (LTI) ratios and mortgage growth rates. I find that both the CCyB and the LTV cap led to a reduction in high LTV mortgages. The banks affected by the CCyB also reduced their mortgage growth rates. I do not find any evidence that these measures had unintended consequences on LTI risks, other measures of mortgage lending standards, or non-mortgage credit growth.

Using Google searches for specific bank names, we construct the Bank Search Volume Index (BSVI) and investigate its predictive effect on banks' capital adequacy. Based on the US bank-level financial data spanning from quarter one 2004 to quarter one 2020 and employing fixed-effects panel data analysis, we find that higher BSVI predicts reductions in capital adequacy. Specifically, a one standard deviation increase in BSVI forecasts a decline in capital adequacy over the next one, four, and eight quarters of 0.016 percent, 0.018 percent, and 0.011 percent, respectively. While the short-term predictive effect of BSVI agrees with various extant studies, which typically report only transient predictive power of Google Search Volume, the long-lasting predictive impact of BSVI (quarters 4 and 8) contrasts with most. Moreover, we find that when investor concerns about economic conditions rise, as measured by the Finance Stress Index (FSI), the predictive relationship between BSVI and capital adequacy reverses, consistent with the 'flight-to-safety' phenomenon. We create the Bank Search Volume Index (BSVI) using Google searches for specific bank names and study its predictive power on bank capital adequacy. We found that a higher BSVI predicts capital adequacy declines using US bank-level financial data from 2004 to 2020 and fixed-effects panel data analysis. BSVI's short-term predictive effect matches numerous studies showing that Google Search Volume is only temporarily predictive. However, BSVI's long-term predictive effect in quarters four and eight differs from most studies. When investors' economic concern rises, as measured by the Finance Stress Index (FSI), the predictive relationship between BSVI and capital adequacy reverses. Legislators, regulators, and supervisors are expected to acknowledge the importance of the internet, especially Google, in financial matters and improve their institutions' capacity to handle variations in search volume.

This research explores the balanced panel data to examine the level of capital adjustment for major insured commercial banks over the 2002-2018 period using a two-step GMM estimator. The findings show that the speed of adjustment of the large insured commercial banks is faster than that of non-financial companies. The results contribute to a slower average adjustment pace of a total capital ratio than the total risk-based capital and capital buffer ratios. The adjustment of capital is faster in the post-crisis period than during and before-crises era. The adequately capitalized banks adjust capital ratio faster than well-capitalized banks. In contrast, the under-capitalized banks adjust the total risk-based capital ratio and capital buffer ratio more quickly than that of others. The low liquid banks needed a higher time to restore equilibrium than high liquid banks. The results of this study have economic significance for policy implications and future regulations.

Purpose This study aims to examine the effect of financial inclusion on bank stability, and the effect of bank stability on financial inclusion from 2011 to 2020. Design/methodology/approach This study analyses 33 countries which are divided into Asian countries, African countries, European countries and countries in the region of the Americas and using the panel regression method. Findings The analysis for the impact of financial inclusion on bank stability shows that high levels of financial inclusion have a significant positive impact on bank stability. The regional results show that financial inclusion improves bank stability in African countries and in countries in the region of the Americas while financial inclusion impairs bank stability in European countries. The analysis for the impact of bank stability on financial inclusion shows that bank stability has a significant effect on financial inclusion. The regional analysis shows that greater bank stability decreases financial inclusion in European and African countries while greater bank stability increases financial inclusion in countries in the Americas region. The results suggest that the effect of financial inclusion on bank stability, and the effect of bank stability on financial inclusion, depends on how financial inclusion and bank stability are measured and the region examined. Originality/value Existing studies have not examined the effect of financial inclusion on capital-based measures of bank stability and have not examined the effect of capital-based measures of bank stability on the level of financial inclusion.

The study aims to investigate the effect of conventional capital ratio, risk-based capital ratio, and capital buffer ratio on commercial bank risk-taking over the period from 2002 to 2019 using a two-step GMM method. The finding reveals that there is a positive relationship between traditional capital ratio and risk-taking for the full sample results, which is supported by the regulatory hypothesis. The results are same across various categories based on capitalization and liquidity. Whereas the relationship is negative when capital is measured through risk-based capital ratio and capital buffer, the results are in line with the moral hazard hypothesis. The outcomes are consistent for all subcategories other than for well-capitalized and low liquid banks. The full sample findings are consistent when risk is proxied through loan loss provision. The impact of capital ratios on risk-taking in the pre-, pro- and post-crisis eras is heterogeneous and significant. The findings have significant insights for regulators to observe the differences among pre-, pro- and post-crisis periods for the well, adequately, under, significantly under-capitalized, high and low liquid insured commercial banks of the USA.

Purpose This paper aims to investigate the impact of capital buffer on risk-taking in the Vietnam banking sector as well as examine the moderating role of capital regulation based on Basel II standards and shadow banking on this correlation. Design/methodology/approach The capital buffer is measured by the bank’s capital adequacy ratio minus the regulatory capital adequacy ratio, whereas risk-taking is the inverse value of the Zscore indicator. To test the hypotheses, the two-step system generalized method of moments estimation and a data set for the period 2010–2022 were used. Findings This study reveals the U-shaped nonlinear impact of capital buffer on bank risk-taking, which means that maintaining high capital buffer forces Vietnamese banks to reduce risky activities, but when the capital buffer is thick enough to resist unexpected shocks, an additional level of capital buffer may lead to excessive risky behaviors. The regression outcomes also explore the moderating role of capital regulation based on Basel II standards and shadow banking. To be specific, applying capital regulation following Basel II has caused banks to behave more cautiously and enhance the negative impact of capital buffer on bank risk-taking, whereas engaging in shadow banking activities has caused them to increase risk tolerance and diminish the negative impact of capital buffer on risk-taking. Originality/value This study bridges the gap in the literature regarding the impact of capital buffer on bank risk-taking in a typical emerging market. Especially, the article explores evidence that capital regulation and shadow banking play as moderators between two main interest variables.

The core function of a commercial bank is the provision of credit facilities to its customers and to keep the flow and cycle of economic and financial resources balanced. Banks can only perform these functions if they are well regulated and efficient. The main focus of this study is to analyse the efficiency of African banks, most importantly after the 2008 global financial crisis when the Basel III regulations were popularly adopted by banks globally. The research focus was examined in two ways, the first part focused on investigating the impact of the Basel III capital regulations on the operational and investment efficiency of African banks by using the random effects and pooled ordinary least square panel data regression models. The second part examined if the African banks are indeed efficient by analysing their level of efficiency using the input-oriented DEA approach. The study used audited bank-level data from 45 listed banks operating in six African nations, namely, South Africa, Nigeria, Kenya, Tanzania, Uganda and Malawi, that have adopted the Basel III Accord for the period from 2010 to 2019. The bank-level data were obtained from the IRESS database. The findings revealed that capital buffer premiums significantly affect the operating and investment efficiency of African banks positively. This relationship implies that the capital buffer premium does not only serve as cushion capital against financial, market and economic shocks but also improves the banks’ efficiency by influencing the banks’ decisions and perspective on cost containment strategies. Another key finding is the positive influence the liquidity coverage ratio has on banks’ operational efficiency. The implication of this relationship may simply mean that African banks with well-performing liquidity ratios are efficient in their operations with the ability to meet their short-term obligations such as meeting customers’ credit needs, unannounced depositors’ withdrawals and creditors’ repayments, amongst others. This result could well be interpreted that adopting stricter liquidity requirements creates a liquidity buffer for African banks, giving them cushion confidence to undertake profitable and high-yielding projects, which invariably lead to increased profitability and operational efficiency. Furthermore, the DEA results showed that the sampled banks are operationally efficient with an aggregate of 84.8%, and for their investment efficiency, an aggregate of 94.9%. These findings suggest that African banks are largely efficient and can survive any possible financial or economic crisis. It can be put forward that it is probable that banks that are yet to adopt the Basel III Accord or strengthen their capital and liquidity base, are less efficient and might fail during a global crisis. The current work suggests some appropriate policy-based recommendations.

PurposeWhile poverty alleviation is the first core goal of Sustainable Development Goals (SDGs), and microfinance institutions (MFIs) are considered important instruments for poverty alleviation in developing countries as they provide credit access to the poor, there is surprisingly little evidence of the drivers of the lending behavior of microfinance institutions. Hence, the purpose of this study is to identify the factors that influence the credit growth of MFIs in Sub-Saharan Africa (SSA).Design/methodology/approachThe study relies on unbalanced panel dataset of 130 MFIs operating across 31 countries in SSA during the period 2004–2014 constituting 546 useable observations. The study uses the Arellano-Bover/Blundell-Bond two-step generalized method of moments (GMM) Windmeijer bias-corrected standard errors to estimate the models.FindingsThe results confirm that while capitalization, liquidity and size are positively associated with credit growth, profitability negatively impacts credit growth; whereas, other MFI specific factors namely portfolio quality, deposit growth and nondeposit borrowing growth have little direct effects on MFI credit growth. The results also show that MFI credit growth is pro-cyclical but negatively related to GDP per capita consistent with the theory of convergence. On the other hand, inflation and employment are not important covariates in the credit growth of MFIs.Practical implicationsThe findings suggest that if MFIs improve their liquidity and size by attracting more deposits and nondeposit borrowings, among others, they can increase credit access to the poor. Moreover, since the lending behavior of MFIs is not resilient to GDP shocks, different measures are needed to increase the financial stability of the microfinance industry. In this respect, since MFI capitalization is positively associated with credit growth and MFI credit growth is pro-cyclical, the findings provide useful insights to central banks/regulatory authorities and the Basel Committee as to the need for a counter-cyclical capital buffer requirement in the microfinance industry.Originality/valueThe study is the first comprehensive study to examine the drivers of MFI lending behavior as an extension to lending behavior models from the banking industry.