scholarly journals The Usefulness of Regulatory Capital for Investors’ Judgments in the Basel 3 Framework

2018 ◽  
Vol 13 (6) ◽  
pp. 72
Author(s):  
Alessandro Mechelli ◽  
Vincenzo Sforza ◽  
Alessandra Stefanoni ◽  
Riccardo Cimini
Keyword(s):  
Value Relevance ◽  
Banking System ◽  
Investment Strategies ◽  
International Banking ◽  
Regulatory Capital ◽  
Market Risks ◽  
Economic Decisions ◽  
Risk Sensitive ◽  
The Stability ◽  
European Stock Markets

Value relevance studies assess how well accounting amounts reflect the market information that investors use for their economic decisions. Analysing a sample of 90 banks listed in 24 European stock markets, this study uses a price model (Ohlson, 1995) and provides evidence that a risk-sensitive metric like regulatory capital is more useful for investors’ decisions than book value of equity and that investors price the parts of regulatory capital that are devoted ideally to absorb losses differently due to the different risks taken. In particular, the part devoted to absorb losses due to credit risk is priced higher than the parts devoted to absorb other risks (e.g. market risks, operational risk). According to our evidence, this is due to the business model of the entities analysed, which are mostly retail and wholesale banks with significant credit exposure to clients and other banks. The paper adds to the literature and has implications for regulators and standard setters showing that the assessment and disclosure of regulatory capital not only strengthens the soundness and the stability of the international banking system (Basle Committee on banking supervision, 1988), but provides to investors useful information for their future investment strategies.

Basel II in India: Compliance and Challenges

2011 ◽  
Vol 36 (4) ◽  
pp. 299-318 ◽  
Author(s):  
Mandeep Kaur ◽  
Samriti Kapoor
Keyword(s):  
Banking System ◽  
Basel Ii ◽  
Capital Adequacy ◽  
Annual Reports ◽  
International Banking ◽  
Risk Sensitive ◽  
Reserve Bank ◽  
Global Banking ◽  
The Stability ◽  
Reserve Bank Of India

The stability of International banking system has emerged as a key concern for regulators in rapidly changing global banking scenario. In order to strengthen the soundness and stability of banks, Basel Committee on Banking Supervision (BCBS) came out with a comprehensive, flexible and risk sensitive framework known as Basel II. This paper attempts to assess in detail the role of Reserve Bank of India, in implementation of Basel II framework in Indian banking Scenario. For this purpose, Annual reports of Reserve Bank of India for the period 2002–03 to 2009–2010 have been analyzed in detail. The study has indicated that RBI has taken significant and structural initiatives to implement the Basel II norms in Indian financial system. It also gives glimpse of New Capital Adequacy framework to strengthen the banking structure. The study further throws light on challenges faced by Indian banking industry for the purpose of envisaged implementation of Basel II Accord.

Benchmarking and crosschecking international banking economic and regulatory capital

2005 ◽  
Vol 13 (1) ◽  
pp. 65-79 ◽  
Author(s):  
John L. Simpson ◽  
John Evans
Keyword(s):  
Banking System ◽  
Performance Model ◽  
Capital Adequacy ◽  
Future Research ◽  
Informational Efficiency ◽  
International Banking ◽  
Regulatory Capital ◽  
Loan Loss ◽  
Banking Systems ◽  
Loan Loss Provisions

The purpose of this paper is to provide banking regulators with another tool to crosscheck the appropriateness and consistency of levels of capital adequacy for banks. The process begins by examining banking systems and focuses on market risks and the systemic risks associated with growing global economic integration and associated systemic interdependence. The model provides benchmarks for economic and regulatory capital for international banking systems using country, regional and global stock‐market generated price index returns data. The benchmarks can then be translated to crosschecking capital levels for banks within those systems. For analytical purposes systems are assumed to possess a degree of informational efficiency and credit, liquidity and operational risks are held constant or at least assumed to be covered in loan loss provisions. An empirical study is included that demonstrates how market risk and systemic risk can be accounted for in a benchmark banking system performance model. Full testing of the model is left for future research. The paper merely proposes that such an approach is feasible and useful and it is in no way intended to be a replacement for the current Basel Accord.

EXPERT POLITICAL RISK OPINIONS AND BANKING SYSTEM RETURNS EXPERT POLITICAL RISK OPINIONS AND BANKING SYSTEM RETURNS

2007 ◽  
Vol 5 (1) ◽  
Author(s):  
John Simpson
Keyword(s):  
Stock Returns ◽  
Human Behavior ◽  
Banking System ◽  
Political Risk ◽  
Market Model ◽  
Risk Scores ◽  
International Banking ◽  
Regulatory Capital ◽  
Banking Systems ◽  
Social And Cultural Factors

Human behavior in banking and financial systems is in part made up of a complex mix of political, social and cultural factors. These factors are reflected in expert opinion based political risk scores. Market inefficiency is largely a result of anomalies in human behavior causing information asymmetries. A basic systemic market model is re-specified into a model for international banking systems, which controls for pure political risk. Samples of developed and developing banking systems are examined. Political risk factors and world banking returns are exogenous in models of countrybanking system returns. New political information assists in explaining banking system stock returns. The findings should be of interest to investors in banking stocks. Banking regulators may be assisted in decisions on appropriate levels of regulatory capital as a benchmark for banking systems. The model could help to anticipate financial crises.

KASB Bank Limited: Capital Shortage

2018 ◽  
Vol 15 (1) ◽  
pp. 1-22
Author(s):  
Muntazar Bashir Ahmed
Keyword(s):  
Banking Sector ◽  
Banking System ◽  
Poor Quality ◽  
The State ◽  
Regulatory Capital ◽  
Loan Loss ◽  
Financial Status ◽  
Capital Shortage ◽  
Loan Loss Provisions ◽  
The Stability

KASB Bank Limited was a small sized bank in Pakistan. Its operations did not generate sufficient profits and over the years it was unable to meet the regulatory capital as specified by the State Bank of Pakistan. The bank’s loan portfolio was infected with poor quality borrowers and this resulted in very high non performing loans which required loan loss provisions. The bank sponsor had other group companies which the KASB Bank acquired in order to meet the capital needs. The State Bank as part of compliance with BASEL rules required higher amounts of capital to protect the banking sector and had allowed KASB Bank extra time to meet the capital needs. However, the State Bank ultimately used its regulatory authority to put the bank under its supervision. The State Bank placed KASB Bank under a moratoriam so that the KASB Bank customer deposits were frozen and only withdrawls up to PKR300,000 were allowed from each account. The State Bank wanted another bank to take over the KASB Bank operations and allowed other interested banks to conduct due diligence so as to review the financial status of the bank with a view to take over the troubled bank. There were very few banks interested in taking over because KASB Bank had negative equity estimated at PKR12 to PKR14 billion. The State Bank in order to protect the interests of the 150,000 depositors and the stability of the banking system gave a concessionary loan of PKR20 billion as part of the scheme of amalgamation of KASB Bank with Bank Islami.

NPLs — The Solution Recipe for Albania

2015 ◽  
Vol 3 (1) ◽  
pp. 48
Author(s):  
Elona Shehu ◽  
Elona Meka
Keyword(s):  
Interest Rate ◽  
Negative Relationship ◽  
Banking System ◽  
Gdp Growth ◽  
System A ◽  
Analysis Technique ◽  
Recent Financial Crisis ◽  
The Stability ◽  
Asset Quality ◽  
Macroeconomic Determinants

The quality of the loan portfolio in Albanian banking system is facing many obstacles during the last decade. In this paper we look at possible determinants of assets quality. During the recent financial crisis commercial banks were confronted with deteriorating asset quality that threatened not only the banking industry, but also the stability of the entire financial system. This study aims to examine the correlation between non-performing loans and the macroeconomic determinants in Albania during the last decade. NPLs are considered to be of a high importance as they represent the high risk exposure of banking system. A solid bank with healthy assets increases the market efficiency. Our approach is based on a panel data regression analysis technique from 2005-2015. Within this methodology this study finds robust evidence on the existing relationship between lending interest rate, real GDP growth and NPLs. We expect to find a negative relationship between lending interest rate and asset quality. Further we assume an inverse relationship between GDP growth and non-performing loans, suggesting that NPLs decrease if the economy is growing. Furthermore this study proposes a solution platform, which looks deeper into the possibility of creating a secondary active market for troubled loans, restructuring the banking system or implementing the Podgorica model. This research paper opens a new lieu of discussion in terms of academic debates and decision-making policies.

scholarly journals Efficiency of Commercial Banking in Developing Countries

Mathematics ◽  
2021 ◽  
Vol 9 (14) ◽  
pp. 1597
Author(s):  
Violeta Cvetkoska ◽  
Katerina Fotova Čiković ◽  
Marija Tasheva
Keyword(s):  
Developing Countries ◽  
Commercial Banks ◽  
Feasible Solution ◽  
Banking System ◽  
Efficiency Score ◽  
Commercial Banking ◽  
Real Situation ◽  
Super Efficiency ◽  
Bank Management ◽  
The Stability

The aim of this paper is to evaluate the relative efficiency of commercial banks in three developing countries in Europe (North Macedonia, Serbia, and Croatia) in the period from 2015 to 2019, and to provide targets for improvement for the inefficient banks by using DEA. The variables are selected under the income-based approach. Based on the output-oriented BCC model, unusual results are obtained for a few commercial banks in each country, that is, they are BCC relative efficient, which is contrary to the real situation. In order to identify outliers that can affect the efficiency results, a super-efficiency procedure is applied so that banks with a super-efficiency score higher than 1.2 (outliers) or for which a feasible solution was not found are considered in detail and removed, and then the output-oriented BCC model is rerun. Based on the obtained results, the Macedonian commercial banking system shows the highest efficiency (91.1%), followed by the Croatian (90.9%) and the Serbian (81.9%) banking system. The estimated targets for improvement of the inefficient commercial banks could help their top bank management in better resource allocation and making fact-based and faster decisions by which they can improve the operation of the banks they lead and contribute to the stability of the financial system.

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