Abstract
This paper explores the relationship between financial reforms, financial liberalization and the quality of banking regulation and supervision for financial fragility by applying a dynamic two-step system generalized method of moments GMM panel estimator technique. The finding of this study is that the financial vulnerability of the banking sector could be affected, not only by bank-specific and macro-specific variables; but also by financial liberalization and banking regulations and supervision policies. The empirical results of this study confirm the evidence that financial reforms and financial liberalization significantly enhance the likelihood of financial fragility while strong banking regulations and supervision have an inverse relationship with financial fragility. The results of this study also explain that the lag value of loan growth and unemployment contribute to enhancing financial fragility while equity to assets ratio, natural log of total assets and share of foreign banks reduce financial vulnerability.
Highlights
Over the last several years, increasing financial liberalization, integration into the international financial markets, technological advancement, and rapid development of new financial products, and increasing competition in the banking sector have become an important challenge in shielding financialInt
The purpose of this study is to explore the impact of financial reform policies on financial fragility
We have found that the financial vulnerability of the banking sector can be affected by bank-specific and macro-specific variables, and by financial liberalization and banking regulation and supervision policies
Summary
Over the last several years, increasing financial liberalization, integration into the international financial markets, technological advancement, and rapid development of new financial products, and increasing competition in the banking sector have become an important challenge in shielding financialInt. Over the last several years, increasing financial liberalization, integration into the international financial markets, technological advancement, and rapid development of new financial products, and increasing competition in the banking sector have become an important challenge in shielding financial. The recent financial crisis all over the world, which was initiated in the US, was preceded by a high level of Non-Performing Loans (NPLs). The international financial system needed substantial bail-outs to avoid any further large collapses of the banking sector (See Koutsomanoli-Filippaki [1]; Moshirian [2]). Most research studies have investigated the determinants of NPLs by using either the bank-specific or country-specific variables (or both). Guy and Lowe [3] examined the problem of NPLs in the Barbadian banking system by using bank and macroeconomic variables during the period
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