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Consequences of Basel Accords on Bank Risk-Taking and Profitability: Evidence from Asian Countries

Dina Hosam Gabr and Mona Elbannan
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Dina Hosam Gabr: Department of Accounting and Finance, Faculty of Management Technology, German University in Cairo, Egypt

Asian Economic and Financial Review, 2018, vol. 8, issue 12, 1506-1531

Abstract: The main purpose of this paper is to examine the impact of Basel Accord II on bank profitability and risk-taking in three developing Asian countries; Philippines, Thailand and India over the period 2006?2015. Using panel data, the study methodology is to employ both One-way Analysis of Variance (ANOVA) and multiple regression techniques to explore these relationships. Our empirical results show that Basel II, represented by its three pillars; capital regulatory requirement, official supervisory power and private monitoring and market discipline indices all have a significant negative impact on profitability, which may imply that binding regulations have adverse impacts. Furthermore, capital regulatory requirement and private monitoring inversely impact risk-taking while official supervisory power shows a significantly positive effect on bank risk-taking levels. Concluding that bank regulators must insure that the banks in the three countries strengthen their corporate governance and private monitoring to reduce corruption and enhance performance. Same results are obtained when conducting additional analyses to ensure the validity of the results.

Keywords: Basel accords; Capital requirements; Supervisory power; Private monitoring; Market discipline; Profitability; Risk-taking; Bank regulation (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2018
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