Impact of regulation and supervision on European banks’ stability

Faten Ben Bouheni ()
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Faten Ben Bouheni: ISC Paris - Institut Supérieur du Commerce de Paris

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Abstract: This article applies the Generalized Method of Moments technique for dynamic panels, using bank-level data for the selected European countries over the period 2005 to 2011, to investigate the impact of regulation and supervision on risk taking. Three conclusions are reached. First, in France, Germany and UK, restriction on bank activities boosts banking stability. However, supervisors' power and capital adequacy encourage risk taking. Second, in Italy, Greece and Spain, we find that with more supervisors' power, largest banks tend to take greater risks and strengthening regulation and supervision weakens the bank's stability. However, the capital requirements decrease the risk taking. Third, strengthening regulatory and supervisory framework, and compliance with Basel principles enhance financial stability in Europe. These different results between European countries show that the application of regulation and supervision depends on the monitoring mode and the rhythm of application of regulatory policies

Keywords: Restriction on Bank Activities; Capital Adequacy; Banking Supervision; Risk Taking; Dynamic Panel; European Banks (search for similar items in EconPapers)
Date: 2014
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Published in Risk Governance and Control: Financial Markets and Institutions, 2014, 4 (1), pp.23-37. ⟨10.22495/rgcv4i1art3⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04123795

DOI: 10.22495/rgcv4i1art3

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