How Regulatory Capital Requirement Affect Banks' Productivity: An Application to Emerging Economies' Banks

Meryem Duygun, Mohamed Shaban, Robin Sickles and Thomas Weyman-Jones
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Meryem Duygun: University of Hull
Mohamed Shaban: University of Leicester
Thomas Weyman-Jones: Loughborough University

Working Papers from Rice University, Department of Economics

Abstract: This paper presents a novel approach to measure efficiency and productivity decomposition in the banking systems of emerging economies with a special focus on the role of equity capital. We model the requirement to hold levels of a fixed input, i.e. equity, above the long run equilibrium level or, alternatively, to achieve a target equity-asset ratio. To capture the effect of this under-leveraging, we allow the banking system to operate in an uneconomic region of the technology. Productivity decomposition is developed to include exogenous factors such as policy constraints. We use a panel data set of banks in emerging economies during the financial upheaval period of 2005-2008 to analyse these ideas. Results indicate the importance of the capital constraint in the decomposition of productivity.

JEL-codes: C23 D24 G21 (search for similar items in EconPapers)
Date: 2015-06
New Economics Papers: this item is included in nep-ban, nep-cba and nep-eff
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ecl:riceco:15-012

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