Cost-benefit analysis of bank regulation: Does size matter?

Hillary Mulindi

No 51, KBA Centre for Research on Financial Markets and Policy Working Paper Series from Kenya Bankers Association (KBA)

Abstract: This study investigates the trade-off between costs and benefits of bank regulation in Kenya. Using the Stochastic Frontier Analysis (SFA) and Annual data for the period 2003 - 2019, extracted from KBA Financial Database and KNBS macroeconomic data, the study models Industry-level and cluster level relationship between bank regulation and cost inefficiency of banks. The industry-level analysis indicates that stringent capital requirement has a positive and significant effect on the cost-efficiency of banks, while tighter liquidity requirements hurt cost efficiency. Further, the bank tier-level analysis established that the double-layered regulatory framework creates Cost inefficiencies amongst middle-tier banks. The key policy implication would be to consider reviewing, identifying, and amending the regulatory provisions that are creating inefficiencies among the listed middle-tier banks

Keywords: Bank Regulation; Cost-Benefit Analysis; Stochastic Frontier Analysis (search for similar items in EconPapers)
JEL-codes: C24 D61 G28 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cba, nep-eff and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kbawps:51

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