scholarly journals Impact of the Basel III bank regulation on US agricultural lending

2020 ◽  
Vol 80 (3) ◽  
pp. 321-337 ◽  
Author(s):  
Kevin Nooree Kim ◽  
Ani L. Katchova
Keyword(s):  
Growth Rates ◽  
Banking Sector ◽  
Agricultural Sector ◽  
Global Financial Crisis ◽  
Detailed Examination ◽  
Capital Requirements ◽  
Basel Iii ◽  
Content Type ◽  
The Usa ◽  
The Impact

Purpose Following the recent global financial crisis, US regulatory agencies issued laws to implement the Basel III accords to ensure the resiliency of the US banking sector. Theories predict that enhanced regulations may alter credit issuance of the regulated banks due to increased capital requirements, but the direction of changes might not be straightforward especially with respect to the agricultural loans. A decrease in credit availability from banks might pose a serious problem for farmers who rely on bank credit especially during economic recessions. The paper aims to discuss these issues. Design/methodology/approach In this study, the impact of Basel III regulatory framework implementation on agricultural lending in the USA is examined. Using panel data of FDIC-insured banks from 2008 to 2017, the agricultural loan volume and growth rates are examined for agricultural banks and all US banks. Findings The results show that agricultural loan growth rates have slowed down, but the amount of agricultural loan volume issuance still remained positive. More detailed examination finds that regulated agricultural banks have decreased both the agricultural loan volume and their loan exposure to the agricultural sector, showing a possible sign of credit crunch. Originality/value This study examines whether the implementation of the Basel III regulation has resulted in changes in agricultural loan issuance by US banks as predicted by the lending channel theory.

scholarly journals The Basel accords, capital reserves, and agricultural lending

2019 ◽  
Vol 79 (1) ◽  
pp. 27-47 ◽  
Author(s):  
Gary W. Brester ◽  
Myles J. Watts
Keyword(s):  
Financial Crisis ◽  
Global Financial Crisis ◽  
Capital Requirements ◽  
Unintended Consequences ◽  
Portfolio Diversification ◽  
Content Type ◽  
Return On Equity ◽  
Reserve Requirements ◽  
The Impact ◽  
Capital Reserves

Purpose The safety and soundness of financial institutions has become a leading worldwide issue because of the recent global financial crisis. Historically, financial crises have occurred approximately every 20 years. The worst financial crisis in the last 75 years occurred in 2008–2009. US regulatory efforts with respect to capital reserve requirements are likely to have several unintended consequences for the agricultural lending sector—especially for smaller, less-diversified (and often, rural agricultural) lenders. The paper discusses these issues. Design/methodology/approach Simulation models and value-at-risk (VaR) criteria are used to evaluate the impact of capital reserve requirements on lending return on equity. In addition, simulations are used to calculate the effects of loan numbers and portfolio diversification on capital reserve requirements. Findings This paper illustrates that increasing capital reserve requirements reduces lending return on equity. Furthermore, increases in the number of loans and portfolio diversification reduce capital reserve requirements. Research limitations/implications The simulation methods are a simplification of complex lending practices and VaR calculations. Lenders use these and other procedures for managing capital reserves than those modeled in this paper. Practical implications Smaller lending institutions will be pressured to increase loan sector diversification. In addition, traditional agricultural lenders will likely be under increased pressure to diversify portfolios. Because agricultural loan losses have relatively low correlations with other sectors, traditional agricultural lenders can expect increased competition for agricultural loans from non-traditional agricultural lenders. Originality/value This paper is novel in that the authors illustrate how lender capital requirements change in response to loan payment correlations both within and across lending sectors.

Market efficiency and the global financial crisis: evidence from developed markets

2018 ◽  
Vol 35 (3) ◽  
pp. 362-385 ◽  
Author(s):  
Omid Sabbaghi ◽  
Navid Sabbaghi
Keyword(s):  
Financial Crisis ◽  
Market Efficiency ◽  
Global Financial Crisis ◽  
Weak Form ◽  
Content Type ◽  
Developed Markets ◽  
The Usa ◽  
Econometric Tests ◽  
The Impact ◽  
Empirical Investigations

Purpose This study aims to provide one of the first empirical investigations of market efficiency for developed markets during the recent global financial crisis. Design/methodology/approach Using the Morgan Stanley Capital International (MSCI) country indices as proxies for national stock markets, the study conducts a battery of econometric tests in assessing weak-form market efficiency for the developed markets. Findings The inferential outcomes are consistent among the different tests. Specifically, the study finds that the majority of developed markets are weak-form efficient while the USA is the sole equity market to be commonly diagnosed as weak-form inefficient across the different tests when using full period data spanning the January 2008-November 2011 period. However, when basing the analysis on one-year subsamples over the identical time period, this study fails to reject weak-form market efficiency for all of the developed markets and presents evidence consistent with the Adaptive Market Hypothesis as described by Urquhart and Hudson (2013). When applying technical analysis for the case of the USA over the full study period, the results indicate that the return predictabilities can be exploited for some horizon of variable length moving average (VMA) trading rules. Originality/value This study provides one of the first empirical investigations of market efficiency for developed markets during the recent global financial crisis using an extended set of econometric tests. The study contributes to the existing body of empirical research that formally assesses the impact of a financial crisis on stock market efficiency and underlines the significance and relevance of examining market efficiency through subsample analysis.

scholarly journals Asymmetric Procyclicality of Chinese Banking and the Countercyclical Buffer of Basel III

2015 ◽  
Vol 2015 ◽  
pp. 1-9
Author(s):  
Yufeng Li ◽  
Zhongfei Li
Keyword(s):  
Financial Crisis ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Capital Requirements ◽  
Basel Iii ◽  
Time Varying ◽  
Regulatory Capital ◽  
Economy Growth ◽  
The Global Financial Crisis ◽  
Chinese Banking

Since the global financial crisis of 2007-2008, the importance of the procyclicality in the banking sector has been highlighted. One of the Basel III objectives is to promote countercyclical buffers and reduce procyclicality. We apply time-varying copula combined with GARCH model to test the existence of asymmetric procyclicality of Chinese banking. The results show that the procyclicality of Chinese banking is asymmetric, where the dependence between loan and economy growth is more correlated during the decline stage than the rise stage of economy. Based on this asymmetry, we suggest that the authority can use high frequent index for signalling the start point of releasing countercyclical buffer and accelerate the releasing pace to avoid the supply of credit being constrained by regulatory capital requirements in downturns.

Global financial economic crisis transmission on the transition economy

2019 ◽  
Vol 12 (1) ◽  
pp. 1-22
Author(s):  
Nargiza Alymkulova ◽  
Junus Ganiev
Keyword(s):  
Exchange Rate ◽  
Economic Crisis ◽  
Transition Economy ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Financial Economic ◽  
Kyrgyz Republic ◽  
Content Type ◽  
The Exchange Rate ◽  
The Impact

Purpose The global financial crisis hit the economy of the Kyrgyz Republic by the third wave of its transmission in early 2009. The purpose of this study is to examine the impact of the global financial economic crisis on the transition economy of the Kyrgyz Republic. As there is a low level of the Kyrgyz Republic’s integration into the global financial and economic processes, it is obvious that channels of transmissions are different. Design/methodology/approach The empirical model is the vector autoregression approach. The quarterly data from 2005 to 2013 of the remittances from abroad, trade volumes, exchange rates, credits, deposits and liquidity of the banking system, gross domestic product (GDP) and foreign direct investment (FDI) were used in the empirical analysis. Findings The authors found a significant positive relation between transmission channels such as remittances flow, banking sector, international trade and GDP within the first six months. Thus, a decline in the aforementioned variables has a significant affirmative effect on the country’s GDP. Notwithstanding, the exchange-rate channel adversely influences GDP. Thereby, the depreciation of the national currency leads to an increase in GDP. Originality/value The study findings allow the Kyrgyz policymakers to foresee the global crisis transmission through the primary channels of transmission mechanism. Nevertheless, a decrease of the deposit level by 1 per cent leads to 2.91 per cent decline in FDI inflows. On the contrary, an increase of the exchange rate by 1 per cent leads to 1.54 per cent decrease in imports.

Bank regulation and credit crunch: evidence from MENA region commercial banks

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Chawki EL-Moussawi ◽  
Mohamad Kassem ◽  
Josse Roussel
Keyword(s):  
Commercial Banks ◽  
Banking Sector ◽  
Explanatory Power ◽  
Banking Regulation ◽  
Capital Requirements ◽  
Mena Region ◽  
Institutional Variables ◽  
Content Type ◽  
The Impact ◽  
The Relationship

PurposeThis paper focuses on the relationship between the regulatory capital requirements and the supply of credit for commercial banks that are operating in the MENA region from 1999 till 2017.Design/methodology/approachThe application of the Fixed Effects Model on a panel of commercial banks in the MENA region has shown a negative relationship between supply of credit and both the capital requirements and solvency ratios.FindingsThe results showed that the idiosyncratic, the macroeconomic and the institutional variables affect the supply of credit behavior of banks. The robustness tests using the Two-Stage Least Square method (2SLS) also led to a negative correlation between the growth of credit and capital requirements. Specific macroeconomic and institutional variables have revealed the expected sign and are significant regardless of the estimated specifications.Research limitations/implicationsThis work can be subjected to further future extensions. The explanatory power of our model can be improved by incorporating variables that reflect the corporate governance and structure of banking sector. Similarly, we can also include a variable that takes into account the increasing competition that could affect the stability of the banking sector and therefore the prudential banking regulation.Originality/valuePrevious studies that investigated only the relationship between capital level and risk-taking behavior of banks in the MENA region did not take into account neither the economic and institutional environment nor the impact of these regulations on credit (loans) supply.

Mark-to-market and its effects on community banking during the financial crisis

2015 ◽  
Vol 23 (1) ◽  
pp. 55-72 ◽  
Author(s):  
Hilde Patron ◽  
William J. Smith
Keyword(s):  
Financial Crisis ◽  
Banking Sector ◽  
Market Price ◽  
Accounting Standards ◽  
Capital Requirements ◽  
Community Banks ◽  
Content Type ◽  
Share Prices ◽  
Illiquid Markets ◽  
The Impact

Purpose – The purpose of this paper is to study the impact of the relaxation of mark-to-market (MTM) standards on community banks’ share prices. Mark-to-market valuation of securities became increasingly common in the late 1990s and 2000s, as regulators sought to create more transparent and more current depictions of bank financial positions. However, MTM accounting may be sub-optimal in the presence of severe market frictions, such as those experienced during the financial crisis of the late 2000s. To comply with capital requirements associated with MTM accounting, banks of the late 2000s dramatically liquidated portfolios with potentially solvent assets in illiquid markets, taking huge losses. During the financial crisis, mortgage-backed securities held by banks began to plummet in value. Banks were forced to either liquidate these assets even though there were no buyers or dramatically reduce the values of their portfolios based on fire-sale prices. On a cash-flow basis, these securities had value, as many mortgages bundled in these securities continued to be paid on time; however, with markets frozen, market prices did not reflect this value. Design/methodology/approach – This study shows that, for a sample of 134 community banks, share prices increased after the MTM relaxation, even after accounting for a variety of other economic factors. Findings – This paper shows that, perhaps counterintuitively, the steps taken by the Financial Accounting Standards Board to relax MTM accounting standards may have acted as a stabilizing factor on the market price of community bank shares by allowing banks to selectively liquidate assets, boosting asset prices until uncertainty was resolved. Originality/value – This paper examines the impact of recent changes in accounting standards on the perceived risks associated with the banking sector. It specifically focuses attention on the impacts these changes had on community-based banks within the USA.

scholarly journals Shareholder empowerment, steps forward and steps back

2019 ◽  
Vol 27 (2) ◽  
pp. 169-196
Author(s):  
Saad Almohammed Alrayes
Keyword(s):  
Global Financial Crisis ◽  
Effective Means ◽  
Fiduciary Duty ◽  
Content Type ◽  
Shareholder Engagement ◽  
The Usa ◽  
The Global Financial Crisis ◽  
The Uk ◽  
The Impact

Purpose The global financial crisis of 2007-2008 prompted a significant debate on corporate governance and shareholder empowerment. A question arises as to whether shareholders ought to be further empowered to have a greater influence over the companies’ activities. Yet, it is not self-evident that shareholder empowerment ensures better-run companies’ corporate activities. Thus, the purpose of this paper is to critically examine, identify and explain the corporate regulation forms and control collectively to evaluate the effectiveness of shareholder empowerment fully. Design/methodology/approach To do so, this paper sets out a comparative analysis approach between two jurisdictions, the UK and Delaware in the USA. The paper further addresses by undertaking three case studies; Barclays Plc which illustrated the Comply or Explain role, AVIVA (2012) that concentrated on the impact of the shareholder revolt, and the case of Hills Stores Co. v. Bozic (2000), which involved a claim brought by shareholders on the grounds of a breach of fiduciary duty. Findings This paper argues that the shareholder empowerment theoretically provides an effective means through which corporate activities can be regulated. However, to do this, account must be taken that a distinction should be made between long-term and short-term investors to encourage shareholder engagement by responsible long-term investors. Furthermore, the shareholders can exercise their powers effectively and influence the Board’s decision to award executive compensation. Originality/value This paper offered two distinct contributions: assessing whether in times of crisis shareholder empowerment represents a way to regulate corporate activities and by assessing the distinction between the perception of shareholder empowerment and the reality in practice.

scholarly journals Basel III LCR Requirement and Banks’ Deposit Funding: Empirical Evidence from Emerging Markets

2019 ◽  
Vol 8 (2) ◽  
pp. 101-128
Author(s):  
Tafirei Mashamba ◽  
Rabson Magweva
Keyword(s):  
Emerging Markets ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Basel Iii ◽  
Short Term ◽  
Liquidity Shocks ◽  
Coverage Ratio ◽  
Banking Institutions ◽  
The Impact

Abstract In December 2010, the Basel Committee on Baking Supervision introduced the liquidity coverage ratio (LCR) standard for banking institutions in response to disturbances that rocked banks during the 2007/08 global financial crisis. The rule is aimed at enhancing banks’ resilience to short term liquidity shocks as it requires banks to hold ample stock of high grade securities. This study attempts to evaluate the impact of the LCR specification on the funding structures of banks in emerging markets by answering the question “Did Basel III LCR requirement induced banks in emerging market economies to increase deposit funding more than they would otherwise do?” The study found that the LCR charge has been effective in persuading banks in emerging markets to garner more stable retail deposits. This response may engender banking sector stability if competition for retail deposits is properly regulated.

Regulatory capital requirements: can the banks mitigate the risk through lending rates?

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Vighneswara Swamy
Keyword(s):  
Commercial Banks ◽  
Bank Lending ◽  
Capital Requirements ◽  
Basel Iii ◽  
Content Type ◽  
Percentage Point Increase ◽  
Point Increase ◽  
Lending Rate ◽  
Lending Rates ◽  
The Impact

PurposeThe purpose of this study is to investigate the impact of the new capital requirements under the Basel III framework on bank lending rates.Design/methodology/approachBy constructing a stylized representative bank's financial statements, the authors show that the higher cost associated with a 1-percentage increase in the capital ratio can be recovered by increasing the bank lending rate.FindingsThe results indicate that in the case of scheduled commercial banks, a 1-percentage-point increase in the capital ratio can be recovered by a commensurate increase in the bank lending rate by 16 basis points and would go up to an extent of 94 basis points for a 6-percentage point increase assuming that the risk-weighted assets are unchanged.Practical implicationsThe results assume significance as the estimations for the scenarios of changes in risk-weighted assets change in return on equity and the cost of debt. Given the enormous significance of the impact of Basel III on banks, this research outcome benefits the practitioners in the industry and researchers.Originality/valueThis study contributes to the literature on bank regulation and risk management with a newer and topical approach for quantification of the impacts of new regulatory standards. Another contribution of this study is that it considers three different groupings of banks: (1) scheduled commercial banks; (2) public sector banks and (3) private banks in Indian banking. This is the first of its kind in the context of studying Indian banking.

scholarly journals The productivity of GCC Islamic and conventional banks after Basel III announcement

2019 ◽  
Vol 10 (5) ◽  
pp. 770-792 ◽  
Author(s):  
Mohammad Alsharif ◽  
Annuar Md. Nassir ◽  
Fakarudin Kamarudin ◽  
M.A. Zariyawati
Keyword(s):  
Banking Sector ◽  
Productivity Index ◽  
Scale Efficiency ◽  
Productivity Change ◽  
Basel Iii ◽  
Islamic Banks ◽  
Content Type ◽  
Negative Effect ◽  
Conventional Banks ◽  
The Impact

Purpose This study aims to analyse Gulf Cooperation Council (GCC) Islamic and conventional banks’ productivity and to investigate the impact of Basel III on their productivity change. This study is conducted on 73 GCC banks (45 conventional and 28 Islamic) over the period of 2005-2015. Design/methodology/approach This study uses the data envelopment analysis-type Malmquist productivity change index and its component indexes to obtain a deep insight into the source of productivity change. Findings The results show that Islamic banks are less productive than their conventional counterparts. Also, the results indicate that Basel III accord has impeded the GCC banks’ productivity and this negative effect is larger on Islamic banks. However, there is scale efficiency progress in the past years that offsets the production frontier deterioration, which leads to stagnation in total productivity change for both banks. Originality/value This study differs from the previous GCC banks’ productivity studies in several ways. Firstly, it covers a recent period that includes major events such as the global crisis and focuses on the influence of Basel III accord on GCC banks’ productivity. Secondly, as opposed to the previous studies, this study will estimate the GCC banks’ productivity index and its components based on separate frontiers for Islamic and conventional banks that will ensure the homogeneity in the sample and the robustness of the results. Thirdly, this study uses a combination of parametric and non-parametric tests to confirm and check the robustness of the findings. Lastly, to the best of the knowledge of the authors, this is the first study that tries to analyse the GCC banking sector productivity around the new Basel III announcement.

Sign in / Sign up

Export Citation Format

Share Document