Problems In Banking Sector Research Articles

The Evolution and Challenges of the EU’s Fiscal Policy Framework: A Critical Analysis

The European Union’s fiscal policy framework has undergone significant evolution and faced numerous challenges since the establishment of the Economic and Monetary Union (EMU). This essay critically analyzes the development, reforms, and critiques of the EU’s fiscal rules, particularly in light of the sovereign debt crisis and the recent pandemic. Initially, the EMU focused little on fiscal integration, but the subsequent two decades have been marked by expansion and crisis management, with key reforms such as the ‘Six Pack,’ the Treaty on Stability, Coordination and Governance (TSCG), and the ‘Two Pack’ aiming to stabilize the EMU and prevent unsustainable public finances. Despite these efforts, the EU’s fiscal rules have been criticized for their complexity, rigidity, and lack of enforcement, leading to ineffective fiscal management. The Maastricht Treaty’s fiscal cap and public debt target, operationalized through the Stability and Growth Pact (SGP) since 1999, have been particularly scrutinized. Current proposals for reforming the EU’s fiscal framework are seen as insufficiently simple, flexible, and effective, potentially leading to unintended negative consequences. The essay also examines the role of the European Banking Union (EBU) in the fiscal policy framework, established in response to the financial crisis and designed to ensure the soundness of Europe’s financial sector. The EBU, with its Single Supervisory Mechanism (SSM) and Single Resolution Mechanism (SRM), plays a critical role in preventing banking sector problems from causing financial distress in EU countries.

Origins of banking crises revisited: Evidence from Developed and Developing Countries

This paper revisits the causes of the 2008 global financial crisis. It focuses on the causes of the crisis, ignoring cross-country contagion effects. The study uses an assortment of financial, regulatory and macroeconomic variables to estimate a logit econometric model for a large sample of developed and developing countries. Findings indicate that lower bank liquidity, higher inflation rates, greater credits to the private sector are all correlated with an increased risk of banking sector problems. In addition, results stress the role of microeconomic variables in explaining the 2008 banking and financial crisis. Surprisingly, results prove that good regulatory practices are likely to enhance the probability of banking crisis, which contradicts the theory prediction. This positive finding makes us skeptical about the role of regulation in promoting banks' stability during the 2008 financial crisis.

Impacts of capital structure: profitability of construction companies in Ethiopia

PurposeCapital structure decisions are important decisions for any business activity because they have considerable influence on the worth and cost of companies. Most previous studies in Ethiopia were primarily focused on identifying and measuring problems in banking sectors and other sectors and paying little attention to the construction sector. The purpose of this study is mainly to fill the gap by examining the effects of capital structure on the profitability of construction firms in Ethiopia.Design/methodology/approachTo test hypotheses of the study, time series secondary data were gathered from the sample of 30 grade one construction companies in Ethiopia during the 2011–2015 period. To examine the correlation among capital structures and its determinants, random effect multiple regression models were used.FindingsFrom the regression outcomes, the study indicates that capital structure measured by debt to equity and long-term debt to total assets has a significant positive correlation with return on equity (ROE) and return on assets (ROA) of sampled construction companies. However, the capital structure measured by debt to assets has a significant negative correlation with ROE and ROA of sampled construction companies in Ethiopia.Originality/valueThis paper is the author’s original work and assures that the paper was not undertaken anywhere and is also not published in any journal before.

The relationship between credit risk management and non-performing assets of commercial banks in India

PurposeThe purpose of this paper is to examine the impact of credit risk components on the performance of credit risk management and the growth in non-performing assets (NPAs) of commercial banks in India.Design/methodology/approachThe data are obtained from primary and secondary sources. The primary data are collected by administering questionnaire among risk managers of Indian banks. The secondary data on NPAs of Indian banks are from annual reports and Prowess database compiled by the Centre for Monitoring Indian Economy. Multiple linear regression is used to estimate the models for the study.FindingsThe results suggest that the identification of credit risk significantly affects the credit risk performance. The results are robust as credit risk identification is negatively related to annual growth in NPAs or loans. There is evidence in support of a priori expectation of better credit risk performance of private banks compared to that of government banks.Practical implicationsThe study has implications for Indian banks suffering from a high level of losses due to bad loans. In addition, it will have implications for the implementation of new Basel Accord norms (Basel III) by the Reserve Bank of India.Social implicationsThe high and rising level of NPAs will have adverse consequences for credit flow in the economy in the absence of appropriate intervention by government and central bank in the form of changes in institutional and regulatory infrastructure. The problems in banking and financial services sector will lead to lower industrial and aggregate economic growth, and lower (or negative) growth in employment.Originality/valueThere is little evidence on credit risk management practices of Indian banks, and its relationship with credit risk performance and NPA growth. The need for an effective risk management system to manage credit risk assumes importance and urgency in the context of high and rising NPAs of Indian banks, and the consequences for the Indian economy.

Regional Coverage with Banking Services and Regional Economic Health

Economic developments are rapidly accelerating, and the world is becoming even more complicated. Recently, the world has witnessed the trend toward the reduction of household contribution and growing contribution of non-financial corporations as well as the one of public administration to GDP within its institutional structure. The main problem in Russia results from huge territories and low interest of investors due to weak guarantees of investment protection. The banks with large state-owned shareholding do not always match their activities with the interests of the State. Low penetration of banking services into regions results from their low capitalization, low level of financial literacy, insufficient demand for banking services from the population and unfair competition posed by state-owned banks. With the general problems of banking sector added by regional factors, the derived statistics is extremely controversial. The solution of this problem needs durable solutions.

OCENA RELACJI MIĘDZY POGŁĘBIANIEM SIĘ RYNKU FINANSOWEGO I WZROSTEM GOSPODARCZYM: DOWODY Z UKRAINY

In this paper systemic problems of Ukrainian banking sector are reviewed and the solutions are offered. The main objective of the study is to examine the relationship between a financial deepening and economic growth in Ukraine by estimating several multiple regression models over the 1993 to 2015 period. A real GDP growth per capita was used as an indicator for the economic growth. The domestic credit to private sector (% of GDP) was used as an index of financial depth. The study concludes that financial deepening causes a slight impact on the economic growth of Ukraine. A low level of impact is an indicator of a limitedness of lending to the real economy. This means that banking sector has not become the real driving force of the economic growth in Ukraine yet. The study suggests a statement that policy makers should design the policies which will encourage lending especially high tech production, small and mid-size business, micro financing to the real economy to promote economic growth and increase employment.

The Impact of the 2007–2008 Financial Crisis on the Banking Systems in Advanced European Countries

The aim of this article is to explore the impact of the financial crisis in 2007–2008 on the banking sector in advanced economies of the European Union. The 2007–2008 financial crisis severely affected economies of the European Union, where the recession, the aftermath of the crisis, was more severe than in the US. Advanced economies were not often examined due to rare occurrences of financial crises in those countries, thus this research will contribute to the literature by providing detailed analysis of the crisis consequences on the economy and banking sector in advanced economies. Additionally, this research will provide an overview of the impact of the financial crisis on the banking sectors using the capital asset pricing model (CAPM) beta of the banking sector. The collapse of Lehman Brothers worsened the situation in the EU financial markets, where high volatility and a huge drop in the equity prices were observed. Furthermore, a high value of beta of banking sectors in 2007 and in 2008 indicated the stress in the selected European banking sectors. The banking sector problems were due to the uncertainty about the EU financial institutions" exposure to ’toxic" assets from the US. To restore confidence in the interbank market, the most troubled European financial institutions were bailed out. Despite governments" interventions there was a decline in business investments and consumption, a decrease in exports and an increase in unemployment in the EU countries.

Bank Credit, Liquidity Shocks and Firm Performance: Evidence from the Financial Crisis of 2007-2009

This paper provides evidence about the transmission of banking sector problems to the real sector, and examines the impact of bank credit supply frictions on firm performance. I exploit differences in the composition of banks' liabilities structure during the financial crisis of 2007-2009 as a source of exogenous variation in the availability of bank credit to nonfinancial firms, in order to identify the causal relationship between bank credit supply and firm performance, measured by firms' stock returns. My evidence indicates that banking relationships are important for firms. Firms whose banks relied more on core deposit financing had a lower decline in bank credit during the crisis than those whose banks were mainly financed by noncore sources of funding. I document a positive relationship between changes in bank credit and firms' stock returns during the crisis: a one standard deviation decline in bank credit to a firm causes a stock return reduction of 3.5 percentage points, while firms that had lending relationships with healthier banks had a lower decline in bank credit and thereby lower reductions in their stock returns during the crisis.

Regulatory framework and deposit – investment guarantee fund in Greece

Purpose – The purpose of this paper is to examine the current regulatory framework of Greek Deposit and Investment Guarantee Fund, trying to show solutions for strengthening it. Design/methodology/approach – This paper aims to investigate the deposit and investment guarantee fund in Greece by identifying new problems and developing solutions. Findings – The main finding is that the deposit and investment guarantee fund contributes to the stability of the Greek banking sector and also offers practical solutions to strengthen it. Greek Deposit and Investment Guarantee Fund has an important feature, which is the speed of a decision about a bank failure resolution (in five working days), but needs immediately strengthening and increasing its funds to cope with the resolution of non-viable banks and undertaking for costs. There should be an appropriate ratio between the size of total assets (especially cash and cash equivalents) of Greek Deposit and Investment Guarantee Fund and the amount of total guaranteed deposits, which is now below 2 per cent. Regulatory framework needs revising and fees must be increased if its funds fall below a certain level of coverage of guaranteed deposits. Also, a guarantee premium, not only a flat rate premium, should be implemented for all banks. An additional risk-adjusted premium varying according to Greek banks’ risks of their portfolios would be better to increase funds of deposit guarantee fund and reduce moral hazard of bank manager by increasing costs. They must ensure an adequate diversification of re-deposits of Greek Deposit and Investment Guarantee Fund funds and must limit and avoid a conflict of interest of its board membership for individuals who are actively involved in Greek commercial banks by implementing framework and rules about it. Also, as a consequence of obeying the regulatory framework, it is necessary to include as board members of Greek Deposit and Investment Guarantee Fund only those banks that are subject to strong prudential supervision and regulation. Practical implications – As a result of research, changes are necessary to immediately be made to cope with current financial crises and problems of Greek banking sector. Originality/value – The originality of this paper is that it is the first description of the Greek Deposit and Investment Guarantee Fund and its results are important for economists, politicians and international community, who evaluate the regulatory framework of Greek Deposit and Investment Guarantee Fund, especially at the current time when the Greek economy and the Greek banking sector are in a very weak fiscal position.

Economic Crises in Turkey and Pathways to the Future

This paper investigates the Turkish economy within a comparative historical framework. In light of a thorough discussion of Turkish economic crises in the post-1980 period, the paper explores Turkey's contemporary strengths and weaknesses in the global economic arena by comparing it with its peers and developed nations. The paper also highlights Turkey's extant economic vulnerabilities, especially its current account deficit, volatile international capital flows and ongoing banking sector problems. Along with other policy recommendations regarding these vulnerabilities, the paper proposes the introduction of capital controls to enhance economic institutions and cope with future hardships.

Antigua and Barbuda: Staff Report for the 2014 Article IV Consultation and Second Post-Program Monitoring

KEY ISSUES Context. The new government that came to power in June 2014 inherited serious fiscal and external payments problems, including arrears to the Fund and other creditors, and unresolved banking sector problems. Moreover, public debt remains at an unsustainable level of close to 100 percent of GDP, while economic activity has been weak with output still well below the level reached at the time of the 2008/09 global financial crisis. Main policy recommendations • Implement fiscal measures equivalent to 2.8 percent of GDP in 2015 to tackle cash flow problems and achieve an underlying primary surplus of 3.0 percent of GDP by 2016 to address debt sustainability challenges. Underpin measures with structural fiscal reforms. • Use Citizenship by Investment Program revenues to pay down arrears and debt and fund bank resolution. The program should be managed in line with the high standards of governance and transparency set out in the law. • Move expeditiously as planned with the resolution of ABI Bank and support initiatives underway to strengthen the regional bank resolution framework, in particular, the passage of needed legislative reforms. • Improve competitiveness by moderating labor costs; increasing energy efficiency, including by better performance of the state-owned utility company; and improving the investment climate. Authorities’ views. The authorities broadly agreed with staff’s assessment of the economic situation and risks, and its recommendations to reduce fiscal vulnerabilities and strengthen the banking system. They were more optimistic about growth prospects for 2015 based on expectations for substantial FDI. They are opposed to increases in taxes and plan to focus fiscal efforts on cutting recurrent spending. On bank resolution, they wish to work closely with the Fund and World Bank to speedily address outstanding problems. They paid the arrears to the Fund and committed to timely servicing of Fund obligations. Data provision. Data provision is adequate for surveillance and post-program monitoring although significant areas for improvement remain, in particular on labor market statistics, measurement of arrears, financial information on state-owned enterprises, and national accounts by expenditure components.

Baltic States Banking Sector Evolution

Abstract This article gives an overview of the Baltic States banking sector, analysis of the evolution, structure and their perspective. The banking sector was most focused on, as is currently the most important financial intermediation chain, which has the highest weight. The crisis 2008 has highlighted the impact of globalization on the financial sector. The banking industry must take responsibility not only for a profitable business, but also for the banking activities of the possible consequences economy as a whole. This article analyzes the evolution of the banking sector in Baltic States economy recovery; financial stability in Baltic States related to the uncertainty. This paper analyzes the banking sector problems, efficiency indicators and its evolution. Article examines the changes in banking sector with the economic growth, in crisis and after the crisis. It examined the banking sector in different States and its future development, improvement perspective.

A State-Owned Payment and Savings System as an Alternative to the Banking Regulations Strengthening

The dramatic consequences of the global crisis forced governments to take into consideration the banking sector reform. The main initiatives are based on the banking regulations strengthening. In this paper we approach another kind of solution to the banking sector problems: a state-owned payment and savings system which could induce a responsible behavior to the financial institutions.

The 2007–2009 financial crisis: changing market dynamics and the impact of credit supply and aggregate demand sensitivity

This article singles out the determinants of changes in US firms’ systematic risk and idiosyncratic return induced by the 2007–2009 financial crisis. After establishing that systematic risk changes during the crisis, the results show that higher operational and financial leverage coincide with an increase in systematic risk, while high cash availability is associated with a decrease in systematic risk. The crisis-induced idiosyncratic return worsens with increasing financial leverage, higher sensitivity to aggregate demand shocks and banking sector problems, and lower operational leverage. Additional results show that the aforementioned variables have economically large effects on firm performance during the crisis.

Appraisal of Financial Situation of the Polish Banking Sector from 2008 to 2012

Appraisal of Financial Situation of the Polish Banking Sector from 2008 to 2012 The banking system is a very important element of the financial system of a country. As institutions of public trust, banks play a crucial role in the process of transforming savings into investments, which directly affects the country’s economic development. Maintaining the banking sector in a good financial condition guarantees stability of the financial system and economic development of Poland. The article aims to present the essence of operations of banks as financial institutions, present their role in the economy, and describe various methods of appraising their financial condition. In order to fulfil the above goals, a research hypothesis is put forward stating that the financial condition of the banking sector in Poland deteriorated in the analysed period as a result of an adverse impact of turbulence in financial markets and problems in banking sectors in the European Union countries.

Explaining European Union Citizens’ Trust in the European Central Bank in Normal and Crisis Times

AbstractWe study the determinants of trust in the European Central Bank (ECB) as measured by the European Commission's Eurobarometer survey, in particular during the global financial crisis and the European sovereign debt crisis. We find that the fall in trust in the ECB in crisis times can be rather well explained based on the pre‐crisis determinants. We also show that the fall in trust reflected the macroeconomic deterioration, a more generalized fall in the trust in European institutions in the wake of the crisis, and the severity of the banking sector's problems, to which the ECB was associated in the public opinion.

Canadian and US Financial Sector Stability Differences over Long History: Is There a Unifying Explanation?

Canada and the United States are highly similar economies, as would be expected given the many common historical influences on economic policy and regulation, the shared geography and the high degree of economic interaction, amplified powerfully in recent decades by the 1989 Canada-US Free Trade Agreement. However, in the financial sector, and particularly in banking, the experience of the crisis-prone United States contrasts starkly with Canada’s stability. For each major US crisis – the Great Depression, the S&L crisis and the sub-prime mortgage debacle as well as others – different sets of micro reasons have been put forward to explain Canada’s comparative stability in the face of broadly similar shocks. This paper examines whether there is a unifying explanation for these contrasting outcomes. It identifies the tipping points early in Canada’s history that led Canada to manage banking sector problems in a cooperative arrangement between the banks and the Canadian authorities directly addressing the externalities generated by bank failures while controlling the resultant moral hazard through social networks rather than market disciplines. Importantly, the system ensured enough competition to be efficient.

Banking in a challenging environment

The current crisis with its on-going banking sector problems has brought to the fore various cases of financial fraud and banking scandals that have additionally undermined the already low confidence in the sector. This has raised concerns about structural flaws in the way banks operate and are being regulated and supervised. Restoring investor confidence may require new approaches to redesign the incentives, rules and regulations for the financial sector. This was the backdrop for the discussions at the October 2012 OECD Financial Roundtable that this article summarises. Topics covered the current outlook and risks for banks as well as banking business models, ethics and approaches towards risks. Participants pointed out that, while downsizing and adjusting their business models, banks had already made improvements in their risk management. At the same time, the now observed renationalisation of assets could worsen the situation particularly in the European periphery. This could be attenuated by a European Banking Union that would also help to break the detrimental link between banks and sovereigns. As banks are deleveraging, non-banks are substituting for part of the reduced bank lending, but to do so would need regulatory support – while the shadow banking sector more generally will come under closer regulatory and supervisory scrutiny. Consumer groups in particular regard financial consumer protection as important to help improve the social value of financial activities that had often been unproductive, if not destructive. Bank representatives opposed regulatory separation of bank business on the grounds that it is insufficient to address problems of risk taking and control. Finally, it was pointed out that regulatory reforms need to be targeted and harness market forces by balancing penalties and rewards. Governance of regulation should also be enhanced, and regulation should be proactive and be complemented by strong macro and micro-supervision. Co-ordinating reforms should ensure a level playing field, but a one-size-fits-all approach should be avoided.

Explaining EU Citizens’ Trust in the ECB in Normal and Crisis Times

Abstract: We study the determinants of trust in the ECB as measured by the European Commission's Eurobarometer survey in particular during the global financial crisis and the European sovereign debt crisis. We find that the fall in trust in the ECB in crisis times can be rather well explained based on the pre-crisis determinants, and show that the fall in trust reflected the macroeconomic deterioration, a more generalised fall in the trust in European institutions in the wake of the crisis as well as the severity of the banking sector's problems, to which the ECB was associated in the public opinion.;

The Determinants of Banking Crises: The Case of the 2008 Worldwide Financial Crisis

This paper models the causes of the 2008 global financial crisis. We focus on the causes of the crisis mainly country intrinsic factors that contribute to banking crisis. Thus, we use a variety of macro, financial, institutional and regulatory variables to estimate a logit econometric model for a large sample of developed and developing countries. We found that high rate of appreciation of the exchange rate, deterioration of the terms of trade, high ratio of bank liquidity, high real credit growth, less developed financial markets, higher access to capital markets and lower openness to international trade are all correlated with an increased risk of banking sector problems. The outcome suggests that restrictions on securities activities, tighter capital regulation and powerful supervisory agencies are positively correlated with bank fragility. Our findings also stress that regulatory and supervisory practices that empower private sector corporate control of banks promote bank stability. Our result stresses the role of microeconomic and bank regulatory variables in explaining the 2008 banking crisis.