Bank Stability Research Articles

Finance and Output Volatity During The Global Financial Crisis

This paper assesses the effectiveness of financial depth and financial inclusion in the mitigation of output volatility during the 2008-2010 Global Financial Crisis. The paper also evaluates whether finance is more effective in countries with more developed financial systems, higher levels of economic developments, sounder banking systems, and better political stability. Employing a cross-sectional dataset covering more than 100 countries, our results indicate the ability of finance in subduing output volatility during the crisis. Our evidence is also concrete in suggesting the success of finance in reducing output volatility in more financially developed, advanced, and politically stable countries. However, the evidence is unclear on whether finance is beneficial for countries characterized by low, intermediate, or high banking stability. In addition to these findings, the preponderance of evidence tends to suggest the better ability of financial usage as compared to financial access in mitigating aggregate fluctuations during the crisis. Finally, our additional analysis reveals that finance functions well in stabilizing output when output volatility is high.

Stability and Financial Performance of Banks in European Countries Bordering the Military Conflict in Ukraine

Stability and Financial Performance of Banks in European Countries Bordering the Military Conflict in Ukraine

Comparative Analysis of Risks and Their Impacts on the Banking Stability of Islamic and Conventional Banks in the MENA Region

This study aims to analyze and compare the impact of risks on banking stability associated with Islamic banks in comparison to their conventional counterparts in the MENA region. In this process, we first examine the correlation between liquidity risk and credit risk. Secondly, we assess whether these two types of risks are related to banking stability within both categories of banks. Using the PVAR (Panel Vector Auto Regression) econometric model on a sample of 110 conventional and Islamic banks in the MENA region, our results indicate that liquidity risk and credit risk exhibit a negative relationship in both types of banks. Furthermore, our findings suggest that there is no correlation between these risks and banking stability in both types of banks. Our conclusions have significant implications for banking institutions regarding the strategies and approaches required to manage these risks and ensure the stability of their banking operations.

The mediating role of intellectual capital on the nexus between diversification, financial stability and efficiency of commercial banks in Ethiopia

PurposeThe main objective of this study is to analyze the mediating role of intellectual capital in the relationship between diversification, financial stability, and efficiency of the banking sector in Ethiopia.Design/methodology/approachSecondary data for this study was obtained from audited financial statements of 17 Ethiopian commercial banks for a decade starting in 2013. A descriptive and explanatory research design with a quantitative research approach was employed. The seemingly unrelated Hierarchical regression analysis is used to estimate diversification’s effect on banks' financial stability and efficiency, considering the interaction between diversification and intellectual capital as a mediating variable.FindingsThe Mediation analysis reveals that asset diversification improves the financial stability of commercial banks when mediated by intellectual efficiency. Investment diversification negatively impacts risk-adjusted return on asset and Z score. Intellectual capital significantly enhances commercial banks' efficiency and financial stability in Ethiopia and mediates the relationship between geographic diversification, financial stability, and efficiency. The mediation analysis also indicates that intellectual capital significantly mediates the relationship between income diversification and efficiency.Practical implicationsThis study highlights the importance of intellectual capital and promotes its strategic allocation by management and regulatory bodies to enhance the financial stability and operational effectiveness of the banking industry in Ethiopia.Originality/value To the best of the researcher’s knowledge, this study is one of the rare attempts to investigate the mediating role of intellectual capital on the nexus between diversification, financial stability, and efficiency of commercial banks in Ethiopia.

The impact of house prices on banking stability in Vietnam: the moderating role of investor sentiment

The impact of house prices on banking stability in Vietnam: the moderating role of investor sentiment

QUALITY OF SUSTAINABILITY REPORTING AND BANK STABILITY: EMPIRICAL EVIDENCE FROM VIETNAMESE COMMERCIAL BANKS

The purpose of this study is twofold. First, we attempt to quantify the quality of bank sustainability reporting (QSR) since the 2016 mandatory sustainability disclosure in Vietnam. Content analysis of banks’ annual reports is performed to assess 11 QSR items that are used to build the QSR index. Second, we investigate whether the quality of sustainability reporting influences banks’ financial stability. Employing a sample of 159 banking firm observations over the period 2016–2021, we document that the quality of sustainability reporting in Vietnamese commercial banks increased from year to year. Importantly, our empirical evidence shows that a higher level of QSR contributes to better bank stability. This result is robust to various estimation methods, different components of QSR, an alternative measure of bank stability, and controlling for reverse causality. Our findings provide important implications for bank managers by highlighting that the enhancement of QSR increases bank stability.

Banking stability multifactor modelling in Armenia using Machine Learning

Banking stability is a sensitive topic in economic literature and a lot of economists are trying to suggest better and better solutions, to foresee banking crises, and respond in a timely manner. Recent advancements in machine learning models as well as the increase in their usability, makes it inevitable their application in banking stability literature, especially when the policy makers are interested in early warning strategy and want to mitigate cumulative or systematic risks. The main concern about using ML models in banking stability tends to be the “Black box” side of neural network models, but this is compensated with their incredible predictive power, if used in a reasonable manner, taking into account best practices in a field. Apart from that, ML is not just limited to NN-s, Random forest approach suggests a way to understand which factors are more useful in the result of prediction.

Socio-economic issues and bank stability: The moderating role of competition

Bank stability has emerged as an area of colossal importance for economic and social well-being, especially in the aftermath of the global financial crisis of 2007–2008. Therefore, this paper examines the impact of socio-economic factors like corruption, political risk, and financial inclusion on the stability of banks. It also investigates whether bank competition interacts with socio-economic factors for the impact on bank stability. Through the use of a dynamic panel estimator and international bank data on country-level indicators spanning 139 nations from 2011 to 2021, our findings indicate that political risk and corruption impede bank stability while financial inclusion promotes it. Subsequent, investigation reveals that competition lessens the detrimental impact of corruption on bank stability while enhancing the stabilizing effects of financial inclusion and political risk. These findings have implications for regulators, government, and bank management in achieving social welfare and bank stability simultaneously.

The Relationship Banking Stability, Exchange Rate, Foreign Direct Investment and Economic Growth in BRICS Countries: A Panel Data Evidence

The Relationship Banking Stability, Exchange Rate, Foreign Direct Investment and Economic Growth in BRICS Countries: A Panel Data Evidence

Analisis Pengaruh Risiko Kredit, Likuiditas, dan Efisiensi Manajemen Terhadap Profitabilitas Bank BUMN, Serta Perbandingan Kinerja Keuangan Bank Bumn dengan Bank Swasta

This research aims to identify the causes of profitability fluctuations in state-owned banks, which significantly impact Indonesia's economic growth. Understanding these risks is crucial to maintaining the stability and competitiveness of state-owned banks against private banks. This identify the influence of non-performing loans (NPL), loan-to-deposit ratio (LDR), and operational costs on operating income (BOPO) on return on assets (ROA) of state-owned banks from 2013-2022. It also compares ROA, NPL, LDR, and BOPO between state-owned and private banks. The study uses a quantitative approach, with multiple linear regression for influence analysis. Then, sample t-tests and Mann-Whitney tests for comparison analysis. It analyzes secondary data from 40 annual financial ratio observations, involving 4 state-owned and 4 private banks. Findings show in state-owned banks that NPL significant negatively impact ROA, LDR has no effect to ROA, and BOPO significant negatively impacts ROA. Together, NPL, LDR, and BOPO significantly influence ROA. Comparatively, there is no difference in ROA, LDR, and BOPO between state-owned and private banks, but there are differences in NPL.

Effects of Negative Interest Rates on Stability and Profitability of Commercial Banks

The article examines the impact of the European Central Bank's (ECB) negative interest rate policy (NIRP) on commercial banks in Europe. It traces the historical context of the policy back to the financial market and banking crises, which eroded trust among banks, leading to liquidity issues and economic downturns. To counteract this, the ECB introduced negative interest rates in 2014, aiming to stimulate the economy.The research question focuses on how NIRP affects banks' annual reports, particularly concerning total assets, credit and risk volumes, proprietary trading, profits, and stability. The hypothesis suggests that NIRP significantly increases risks in bank profitability and stability. Analysis spanning from 2014 to 2022 compares negative interest rate changes with bank balance sheet and profit/loss account developments.Economic theory predicts that negative interest rates decrease bank profits but increase lending activity. Statistical analysis confirms a correlation between NIRP and increased credit risk volume, as well as a shift from bonds to shares in proprietary trading. However, there is no statistical evidence linking NIRP with profit and profitability declines.In conclusion, while NIRP does lead to a significant increase in credit risk volume, it does not halt falling profits and profitability. Therefore, the hypothesis that NIRP increases risks for commercial banks' profitability and stability holds true, posing a threat to financial stability.

Credit risk and Tunisian bank stability in the Covid-19 wave

<p style="text-align:justify"><span style="font-size:16px"><span style="font-family:Times New Roman,Times,serif"><span dir="ltr" lang="EN-US"><span style="color:black">Banks are at the core of economic functioning in various countries and are the cause of their development in various fields. In a changing environment, they must deal with certain risks and maintain financial stability as the ultimate objective. The primary objective of this study is to examine the correlation between credit risk and bank stability within the Tunisian banking sector, with a specific focus on understanding the moderating impact of the COVID-19 pandemic. To achieve this, we employ several econometric techniques, including panel unit root and cointegration tests, panel Vector Error Correction Model (VECM), Fully Modified Ordinary Least Squares (FMOLS), and Dynamic Ordinary Least Squares (DOLS). Our empirical analysis relies on a panel dataset that encompasses a comprehensive sample of 8 Tunisian banks over 2000-2020. The results of our analysis unveil a significant negative relationship between credit risk and bank stability, indicating that higher levels of credit risk exert a detrimental effect on the overall stability of Tunisian banks. Furthermore, our study highlights that this adverse impact is further exacerbated during the COVID-19 pandemic, suggesting that the pandemic acts as a moderator. The findings of this study hold substantial implications for policymakers, regulators, and bank managers in Tunisia. They emphasize the critical importance of implementing robust risk management practices to mitigate credit risk and bolster bank stability. Additionally, the research underscores the need to consider the unique challenges introduced by external shocks, such as the COVID-19 pandemic, when assessing the overall stability of the banking system.</span></span></span></span></p>

CRYPTOCURRENCIES: ECONOMIC IMPACT AND REGULATORY CHALLENGES

The rise of cryptocurrencies, such as Bitcoin, has stimulated international discussions over how the banking system will look in the future, especially by showing its important connection to issues of bank stability, interest rates, and monetary policy. This research paper delves into the numerous ways that cryptocurrencies affect the traditional financial ecosystem, basing its findings on central studies investigating their economic, legal, and environmental implications. The paper explores the potential for cryptocurrencies to disrupt conventional banking systems, monetary policies, and regulatory structures through an analysis of the challenges and opportunities posed by decentralization. Also, it looks at cryptocurrency mining from an environmental perspective, paying attention to sustainable practices and technological advancements required to minimize ecological outcomes. This study comprehensively examines how digital currencies intersect with traditional financial systems, among which some insights are given as regards to coexistence of different types of money in current monetary frameworks that may lead to more inclusive finance systems having higher efficiency levels as well as stability. Finally, it stresses that while benefiting from them on one side, there is also a need for an equilibrium approach that addresses the risks inherent in these currencies together with their surroundings.

The effect of emergent vegetation on flow, bedload transport, and bed morphology in a diffluence-confluence unit on a meandering channel

A diffluence-confluence unit on a meandering channel, coupled with the broadening of the divergence zone and meander circulation, promotes sediment deposition on the convex bank, forming shoals to stimulate vegetation growth, which results in water level elevation, velocity reduction, and bank stabilization. Despite these significant impacts, current research on the influence of this channel remains limited. This study conducts a series of flume experiments to quantify the influence of vegetation in a such channel on flow hydraulics, bedload transport, and bed morphology, and their inter-links. The results reveal that increased vegetation cover density subtly influences the flow depth in straight inlet reaches, triggers higher flow depth and fluctuations in the left anabranch, and induces uneven velocity distribution, especially below the crest of the curved channel. Centrifugal forces and vegetation-induced water levels shape the transverse water surface slope, resulting in a downward concave trend and unique slopes within each anabranch. The bedload transport capacity rapidly increases until an armoring layer forms, a process expedited by vegetation, particularly in high discharge conditions. This vegetation effect, amplified with higher density, enhances bedload transport rate and size but is lessened by increased discharge, which also reduces fluctuations during armoring layer formation. The statistical parameters of bed morphology at the grain-scale and structure-form-scale indicate that denser vegetation reshapes erosion dynamics across anabranches, intensifying downstream scouring and propelling the sediment deposition zone, especially under high discharge. Furthermore, the flow bifurcation ratio intensifies with escalating vegetation cover density and is assessed by a modified model consider vegetation effects with heightened precision. The apex scour depth downstream of the unit, induced by the confluence of water from both anabranches, can be characterized as a function of the dimensionless discharge and vegetation density. Concurrently, a refined model for bedload transport rate, influenced by the turbulent kinetic energy arising from emergent vegetation in this intricate reach, is proposed with high accuracy.

THE EFFECT OF BANK-SPECIFIC AND BANK RISK ON BANK STABILITY AS MEASURED BY NPL OF THE BANGLADESHI COMMERCIAL BANK

This paper analyzed the effects of bank-specific and bank-risk drivers on bank stability as measured by non-performing loans(NPL) of commercial banks in Bangladesh from 2011 to 2021.This study used panel linear regression, and panel corrected standard error (PCSEs) to estimate the model. The main objective of the study was to analysed the effects of bank specific and bank risk on bank stability of conventional banks in Bangladesh. Capital adequacy, asset quality, income diversification, bank competition, managerial efficiency, and profitability (ROE) are used as proxies for bank-specific and liquidity risk; Sensitivity to marketing risk is used as proxies for bank risk, while control variable is used as bank size and non-performing loan (NPL) are used as a proxy for measurement of bank stability. The main results show that capital adequacy and profitability (ROE) are negative, but asset quality, income diversification, bank competition, and managerial efficiency are positively related to the NPL. The results further evaluate those determinants of bank risk, liquidity risk, and marketing risk have a positive impact on the NPL. The control variable bank size has a negative impact on the NPL. Based on our results, authorities in Bangladesh may develop rules for managing operations and ensuring bank stability as measured by NPLs.

Employee training and bank stability

AbstractUsing a unique data set of Italian banks covering the 2011 to 2019 period, this study investigates the influence of human resource training on bank stability and examines whether this relationship is affected by bank efficiency and credit risk. In line with the resource‐based view (RBV) of the firm, our findings suggest that employee training exerts a positive impact on bank stability. Credit risk and bank efficiency are also identified as potential drivers in this relationship. Importantly, our results remain robust when addressing endogeneity issues and considering alternative model specifications. This study offers novel insights into the impact of employee‐related variables on bank performance. The practical implications of our findings hold relevance for both banks and regulatory authorities, as human resource training can profoundly influence the effectiveness of risk management strategies and, ultimately, the sound and prudent management of banks.

Regulation is good but not enough: The historical origins of banking supervision in Spain, 1850–1936

The aim of this paper is to analyse the early stages of banking supervision in Spain, implemented between the second half of the nineteenth century and the first third of the twentieth century. We provide empirical evidence about the main factors behind the emergence of supervision, the supervisory authority, who the supervisors were, the regularity of inspections and the main inspection activities. We show that Spain was an example of early implementation of supervision, through the Banking Law of 1856 and the Banking Law of 1921. However, early regulations did not prove to be effective at reducing banking crises. We also show that banking instability produced a moderate reaction in terms of bank inspections during the second half of the 1920s and the 1930s. Those inspections were interrupted by the Spanish Civil War in 1936, an event that prevented a breakthrough in the supervisory tasks.

Bank fundamental dynamics: the role of optimal bank management

Purpose This study aims to investigate the dynamic relationships between profitability, credit risk, liquidity risk and capital in Indonesian banking industry. Design/methodology/approach The authors use a panel vector autoregression model that incorporates macroeconomic variables: growth, interest rate, foreign exchange. The analysis is based on a monthly panel data set of 88 banks spanning from January 2012 to September 2021, which comprises 10,296 bank-month observations. Findings Our key findings highlight (i) permanent credit cost and liquidity cost pass through practices, (ii) complementary function of liquidity and capital, (iii) earning management motivated asset write off and (iv) credit risk-liquidity risk neutrality. In addition, the authors observe that the banks demonstrated resilience to macroeconomic shocks. Research limitations/implications Our study have shown some interesting dynamic patterns of fundamentals; nevertheless, unified theoretical underpinning of the process is still unavailable. This should be an important future reasearch avenue. Practical implications The study brings significant implications for regulatory and supervisory practices aimed at enhancing the financial stability of banks. Originality/value We conduct estimation of Indonesian banks system in dynamic perspective and perform impulses responses.

Tail risk connectedness among GCC banks episodes from the Global Financial Crisis to COVID-19 pandemic

This paper aims to analyze the impact of the COVID-19 pandemic on market-based systemic risk and the connectedness of commercial banks in Gulf Cooperation Council countries. The results suggest that systemic risk has increased significantly after the pandemic by employing two very well-known systemic risk measures, the Delta conditional value-at-risk (ΔCoVaR) and the marginal expected shortfall (MES), but heterogeneously across GCC nations. Using the Granger-Causality network method, the results reveal a remarkable rise in the percentage and number of significant connectedness between banks for Kuwait and KSA during the pandemic. Oman and Qatar experienced an unnoticeable increase in bank return connectedness. Furthermore, the study identifies the bank characteristics that provide shelter from the systemic shocks of the pandemic. The study findings indicate that income diversification is the most crucial variable for enhancing bank stability amid the pandemic. Our findings provide policy-related implications for understanding and mitigating risk shock transmission and the containment of systemic financial risk, in addition to multiple future lines of research.

Insolvency and Bankruptcy Code: Policy Implications on Asset Quality, Bank Stability and Bank Performance

Insolvency and Bankruptcy Code: Policy Implications on Asset Quality, Bank Stability and Bank Performance