scholarly journals Assessing the Basel II internal ratings-based approach

2016 ◽  
Vol 24 (2) ◽  
pp. 106-139 ◽  
Author(s):  
Silvio Tarca ◽  
Marek Rutkowski
Keyword(s):  
Risk Factor ◽  
Financial Crisis ◽  
Banking Sector ◽  
Credit Ratings ◽  
Basel Ii ◽  
Mild Stress ◽  
Content Type ◽  
Macroeconomic Indicators ◽  
The Impact ◽  
Irb Approach

Purpose This study aims to render a fundamental assessment of the Basel II internal ratings-based (IRB) approach by taking readings of the Australian banking sector since the implementation of Basel II and comparing them with signals from macroeconomic indicators, financial statistics and external credit ratings. The IRB approach to capital adequacy for credit risk, which implements an asymptotic single risk factor (ASRF) model, plays an important role in protecting the Australian banking sector against insolvency. Design/methodology/approach Realisations of the single systematic risk factor, interpreted as describing the prevailing state of the Australian economy, are recovered from the ASRF model and compared with macroeconomic indicators. Similarly, estimates of distance-to-default, reflecting the capacity of the Australian banking sector to absorb credit losses, are recovered from the ASRF model and compared with financial statistics and external credit ratings. With the implementation of Basel II preceding the time when the effect of the financial crisis of 2007-2009 was most acutely felt, the authors measure the impact of the crisis on the Australian banking sector. Findings Measurements from the ASRF model find general agreement with signals from macroeconomic indicators, financial statistics and external credit ratings. This leads to a favourable assessment of the ASRF model for the purposes of capital allocation, performance attribution and risk monitoring. The empirical analysis used in this paper reveals that the recent crisis imparted a mild stress on the Australian banking sector. Research limitations/implications Given the range of economic conditions, from mild contraction to moderate expansion, experienced in Australia since the implementation of Basel II, the authors cannot attest to the validity of the model specification of the IRB approach for its intended purpose of solvency assessment. Originality/value Access to internal bank data collected by the prudential regulator distinguishes this paper from other empirical studies on the IRB approach and financial crisis of 2007-2009. The authors are not the first to attempt to measure the effects of the recent crisis, but they believe that they are the first to do so using regulatory data.

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.

Impact of liquidity and solvency risk factors on variations in efficiency of US banks

2020 ◽  
Vol 46 (7) ◽  
pp. 883-895
Author(s):  
Kekoura Sakouvogui
Keyword(s):  
Risk Factors ◽  
Financial Crisis ◽  
Cost Efficiency ◽  
Negative Impact ◽  
Random Effect ◽  
Basel Ii ◽  
Content Type ◽  
Efficiency Measures ◽  
The Cost ◽  
The Impact

PurposeThis paper evaluates the importance of both liquidity and solvency risk factors on variations in efficiency measures of US commercial and domestic banks from 2005 to 2017.Design/methodology/approachThe analysis is conducted using the true random effect stochastic cost model to examine the role of both liquidity and solvency risk factors. To this end, the author uses the exponential stochastic cost function and adds new variables, including bank size, crisis as an indicator of the financial crisis and the Dodd–Frank Act and Basel II Accord as regulatory dummies.FindingsThe results show that both liquidity and solvency risk factors positively affect the variance of cost inefficiency measures and thus have negative impact on the cost efficiency measures. In addition, banks increased the cost of financial intermediation during the financial crisis, whereas regulatory factors of Basel II Accord and Dodd–Frank Act play a crucial role in explaining the cost efficiency measures.Originality/valueThese results are the first to quantify the impact of both liquidity and solvency on the variations in cost efficiency measures.

Cross organizational standardized business process integration and its application in Saudi Arabian banking system regulation: A case study of advanced IRB regulation

2016 ◽  
Vol 6 (1) ◽  
Author(s):  
Hisham Al Saghier ◽  
Abdulrahman Alrabiah
Keyword(s):  
Financial Crisis ◽  
Credit Risk ◽  
Business Process ◽  
Global Economy ◽  
Banking Sector ◽  
Reporting System ◽  
Current System ◽  
Basel Ii ◽  
Business Rules ◽  
Irb Approach

The idea for this paper came after the recent financial crisis, its global consequences and specifically how it affected the banking sector. Financial institutions and regulators are – from a technical point of view - not fully integrated and automated yet. The inaccuracy in banks’ data and the long set interval period, quarterly, to send the information to the regulators leads to delays interventions by local supervisory regulators. Most of the banks are using an Internal Ratings Based (IRB) approach that allows them to use their own methods to calculate the credit risks, which makes it difficult for the regulators to verify and validate the banks’ data without adopting fully automated connectivity for the regulatory reporting system through sophisticated tools. The importance of this issue, for the central banks as well as the global economy, encourages us to investigate and to find solutions for the problem at hand. This paper is focused on the Advanced Internal Ratings Based (A-IRB) approach to evaluate credit risk due to the importance and the sensitivity of this approach on the banking sector. The flexibility of the A-IRB approach allow banks to use their own method to calculate the credit risk without regulators having the right tools to validate the data is a major issue . The second issue with the A-IRB approach is that the report is only delivered quarterly to the regulator (SAMA). This period is too long as decisions can be taken based on data that is almost a quarter old. Therefore, evaluating the existing framework and solving the issues concurrently is essential to improve the regulatory reporting system. To examine the situation of the regulatory reporting system, first, we reviewed literature on the Basel II&III regulations and the financial crisis, including impacts and responses. The second, we reviewed   factors impeding the implementation of Basel II&III, including solutions to increase coordination and integration and a holistic approach that can mitigate the outstanding issues for the Regulatory Reporting System for the local banks in Saudi Arabia. We also evaluated the current system and the proposed system in two workshops and found that the proposed system showed considerable improvements of more than 100% in some areas and hence should be implemented. Our result is a framework solution that integrates a private cloud computing network with automated and integrated features such as a Business Process Manager, a Knowledge Management Engine, a SLA Lifecycle Manager, a Business Rules Engine and a Data Quality Regulator and the Enterprise Service Bus for communication and integration between the banks and SAMA. Keywords: Business Process, Business Rules, Bank Management

Types of banking institutions and economic growth

2020 ◽  
Vol 13 (4) ◽  
pp. 553-578
Author(s):  
Khaled Elmawazini ◽  
Khiyar Abdullah Khiyar ◽  
Asiye Aydilek
Keyword(s):  
Economic Growth ◽  
Financial Crisis ◽  
Banking Sector ◽  
Empirical Literature ◽  
Content Type ◽  
Gcc Countries ◽  
Before And After ◽  
Endogenous Growth Model ◽  
Conventional Banks ◽  
The Impact

Purpose This paper aims to compare the effects of Islamic and commercial banks on economic growth among the Gulf Cooperation Council (GCC) countries during 2001–2009 (before and during the financial crisis) and 2010–2017 (after the financial crisis). Design/methodology/approach The authors use a cross-sectionally correlated and timewise autoregressive (CCTA) model. The authors also extend the theoretical endogenous growth model developed by Pagano (1993) by introducing the developments in Islamic and commercial financial markets. Findings The authors find that Islamic banks fueled economic growth more than conventional banks before and after the financial crisis. The authors conclude that finance is a major determinant of economic growth, but finance does not follow economic growth. The results show that the ethical principles of Islamic finance can positively affect economic growth. Originality/value The authors contribute to the empirical literature first by examining feedback causality and cointegration between the banking sector and economic growth by examining the impact of the interaction between the banking sector and rule of law on economic growth in the GCC countries instead of a single country, second by providing both of the theoretical and empirical analysis and third by distinguishing between Islamic and conventional banks.

Comparing the competition of Malaysia Islamic and conventional banks

2017 ◽  
Vol 8 (1) ◽  
pp. 23-40 ◽  
Author(s):  
Muhamad Azhari Wahid
Keyword(s):  
Financial Crisis ◽  
Banking Sector ◽  
Robust Regression ◽  
Global Financial Crisis ◽  
Positive Impact ◽  
Ordinary Least Squares ◽  
Islamic Banks ◽  
Content Type ◽  
Conventional Banks ◽  
The Impact

Purpose This study aims to analyse three main questions within the Malaysian banking system: Are Islamic banks more competitive than conventional banks? What are the levels of competition for Islamic and conventional banking sectors pre, during and post the 2007-2009 global financial crisis? Does penetration of Islamic banks affect the competitive structure of conventional banks? Design/methodology/approach In measuring a bank competition, the author estimates the Panzar–Rosse H-statistic (PRH) method on 17 Islamic and 21 conventional banks in Malaysia over the period of 2004-2013. This is then followed by ordinary least squares (OLS) robust regression analysis to control Islamic banks’ penetration, bank-specific and macroeconomic factors. Findings Results from the PRH method (total revenue) suggest that Malaysian Islamic banks are relatively more competitive than their conventional counterparts. Furthermore, the author observes that the level of competition for both Malaysian Islamic and conventional banks increased tremendously during the 2007-2009 global financial crisis. This suggests the impact of the crisis on the level of competition for both banking systems. Finally, the OLS robust regression suggests that Islamic banks’ penetration has a significantly positive impact on the level of competition for conventional banks. The PRH estimation using total interest income indicates similar results, suggesting the robustness of these results. Practical implications This study reveals whether Islamic banks’ penetration is able to increase the level of competition within the conventional banking sector. Knowledge on this is important to the policymaker. Originality/value To the best of the author’s knowledge, this is the first study using the PRH method in comparing the level of competition for Malaysian Islamic and conventional banks. Furthermore, this is the first study analysing the impact of Malaysian Islamic banks’ penetration on the level of competition for conventional banks.

scholarly journals THE IMPACT OF FUNDING STRUCTURE ON EU BANKING SECTOR STABILITY

2020 ◽  
pp. 143-154
Author(s):  
Lech Kujawski ◽  
Monika Liszewska ◽  
Marta Penczar
Keyword(s):  
Financial Crisis ◽  
Business Model ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Eu Countries ◽  
Macroeconomic Indicators ◽  
Banking Business ◽  
The Global Financial Crisis ◽  
The Impact ◽  
The Eu

In our paper, we analyse the impact of funding structure on banking sector stability in EU countries. Our findings show that after the global financial crisis (GFC) there are four main funding models in the EU banking sectors. We document that funding structure is an important factor influencing the banking sector stability. We report that there are also some other banking business model characteristics as well as macroeconomic indicators which have impact on banking sector risk.

The impact of globalization on the performance of Banks in South Africa

2016 ◽  
Vol 26 (4) ◽  
pp. 517-542 ◽  
Author(s):  
Fadzlan Sufian ◽  
Fakarudin Kamarudin
Keyword(s):  
South Africa ◽  
Host Country ◽  
Banking Sector ◽  
Generalized Method Of Moments ◽  
Estimation Method ◽  
Bank Performance ◽  
Content Type ◽  
Multinational Banks ◽  
Dynamic Panel Regression ◽  
The Impact

Purpose This paper aims to provide empirical evidence for the impact globalization has had on the performance of the banking sector in South Africa. In addition, this study also investigates bank-specific characteristics and macroeconomic conditions that may influence the performance of the banking sector. Design/methodology/approach The authors use data collected for all commercial banks in South Africa between 1998 and 2012. The ratio of return on assets was used to measure bank performance. They then used the dynamic panel regression with the generalized method of moments as an estimation method to investigate the potential determinants and the impact of globalization on bank performance. Findings Positive impact of greater economic integration and trade movements of the host country, while greater social globalization in the host country tends to exert negative influence on bank profitability. The results show that banks originating from the relatively more economically globalized countries tend to perform better, while banks headquartered in countries with greater social and political globalizations tend to exhibit lower profitability levels. Originality/value An empirical model was developed that allows for the performance of multinational banks to depend on internal and external factors. Moreover, unlike the previous studies on bank performance, in this empirical analysis, we control for the different dimensions of globalizations while taking into account the origins of the multinational banks. The procedure allows us to test for the home field, the liability of foreignness and global advantage hypotheses to deduce further insights into the prospects of banking across borders.

Influence of human resource capital information disclosure on investors’ share investment intentions

2017 ◽  
Vol 46 (3) ◽  
pp. 551-571 ◽  
Author(s):  
Sugumar Mariappanadar ◽  
Alma Kairouz
Keyword(s):  
Performance Management ◽  
Human Resource ◽  
Information Disclosure ◽  
Banking Sector ◽  
Strategic Human Resource Management ◽  
Annual Reports ◽  
Individual Investors ◽  
Content Type ◽  
Investment Intentions ◽  
The Impact

Purpose The purpose of this paper is to apply the strategic human resource management (HRM) perspective to investigate the schematic relationship between the dimensions of human resource (HR) capital information and intentions to use such information in individual investors’ decisions relating to investing equities in the banking industry. Design/methodology/approach A two-stage empirical study was conducted in 2010 using a four-part HR capital disclosure questionnaire, which was developed and validated in stage 1 (n=145) of the study. In stage 2 (n=157), current or previous shareholders in one of the Australian banking sector corporations participated in the study. The collected data were analyzed using confirmatory factor and logistic regression analyses. Findings The findings of this explorative study highlight that the individual investors’ perception on the importance of performance management dimension of HR capital information has varied impacts on their intentions to use such information in investment decisions to buy, hold on to, or sell stocks. Practical implications This study has made an important contribution to the strategic HRM and behavioral finance literature that the human capital information facilitates the propensity to avoid regrets in selling shares too early (dispositional effect bias) to achieve utility benefits in future which is different from the findings of financial information disclosure study. Originality/value A recent critical review of HR disclosure indicated that most of the published articles on HR capital have used company annual reports for data source. However, this is the first study that attempts to understand the impact of HR capital disclosure information on investment intentions from individual investors’ schema rather than drawing data from company annual reports.

Fair value and banking contagion

2016 ◽  
Vol 7 (3) ◽  
pp. 215-236 ◽  
Author(s):  
Leila Gharbi ◽  
Halioui Khamoussi
Keyword(s):  
Data Model ◽  
Banking Sector ◽  
Fair Value ◽  
Islamic Banks ◽  
Fair Value Accounting ◽  
Content Type ◽  
Gcc Countries ◽  
Conventional Banks ◽  
Value Changes ◽  
The Impact

Purpose This paper aims to explore empirically the impact of fair value accounting on banking contagion in a comparative context between Islamic banks and conventional banks. Design/methodology/approach The analysis of the impact of fair value changes on banking contagion is carried out through a panel data model. This study covers 20 Islamic banks and 40 conventional banks operating in the Gulf Cooperation Council (GCC) countries during nine years from 2003 to 2011. Findings Empirical evidence shows that there is a significant change in dynamic volatility in GCC banking sector because of financial crisis 2008. However, results fail to confirm the hypothesis that fair value accounting is significantly associated with an increase of banking contagion for both Islamic and conventional banks operating in GCC countries. Originality/value The outcome of this study provides some insights for academicians, accountants as well as regulators in terms of enhancing the effectiveness of accounting practices.

Is internal and external mechanism of governance enriching the performance of the banking sector of Pakistan?

2017 ◽  
Vol 17 (4) ◽  
pp. 629-642 ◽  
Author(s):  
Sundas Sohail ◽  
Farhat Rasul ◽  
Ummara Fatima
Keyword(s):  
Corporate Governance ◽  
Banking Sector ◽  
Good Governance ◽  
Random Effect ◽  
Random Effect Model ◽  
General Meeting ◽  
Governance Structure ◽  
Board Structure ◽  
Content Type ◽  
The Impact

Purpose The purpose of this study is to explore how governance mechanisms (internal and external) enhance the performance of the return on asset (ROA), return on equity (ROE), earning per share (EPS) and dividend payout ratios (DP) of the banks of Pakistan. The study incorporates not only the internal factors of governance (board size, out-ratio, annual general meeting, managerial ownership, institutional ownership, block holder stock ownership and financial transparency) but also the external factors (legal infrastructure and protection of minority shareholders, and the market for corporate control). Design/methodology/approach The sample size of the study consists of 30 banks (public, private and specialized) listed at the Pakistan Stock Exchange (PSE) for the period 2008-2014. The panel data techniques (fixed or random effect model) have been used for the empirical analysis after verification by Hausman (1978) test. Findings The results revealed that not only do the internal mechanisms of governance enhance the performance of the banking sector of Pakistan but external governance also plays a substantial role in enriching the performance. The findings conclude that for a good governance structure, both internal and external mechanisms are equally important, to accelerate the performance of the banking sector. Research limitations/implications Internal and external mechanisms of corporate governance can also be checked by adding some more variables (ownership i.e. foreign, female and family as internal and auditor as external), but they are not added in this work due to data unavailability. Practical implications The study contributes to the literature and could be useful for the policy makers who need to force banks to mandate codes of governance through which they can create an efficient board structure and augment the performance. The investments from different forms of ownership can be accelerated if they follow the codes properly. Social implications The study facilitates the bankers in incorporating sound codes of corporate governance to enhance the performance of the banks. Originality/value This work is unique as no one has explored the impact of external mechanism of governance on the performance of the banking sector of Pakistan.

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