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What Are the Differences in the Area of Profitability and Efficiency When Early and Late Adopters Are Analyzed Regarding the Basel III Leverage Ratio?

Martin Bolfek, Karmen Prtenjača Mažer and Berislav Bolfek
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Martin Bolfek: Brunel Business School, Brunel University London, Kingston Ln, Uxbridge UB8 3PN, UK
Karmen Prtenjača Mažer: Retail Collection Department, OTP Bank d.d., Domovinskog Rata 61, 21000 Split, Croatia

JRFM, 2024, vol. 17, issue 1, 1-17

Abstract: This research investigates whether banks that adopted new regulatory requirements earlier, such as Basel III, are more profitable, as well as more efficient, than banks that adopted these requirements later. In addition, all 138 banks are based in the G7 member countries, which are the most developed countries in the world. Also, banks are categorized into early and late adopters based on Basel III Leverage Ratio performance by using Fitch Connect. Moreover, profitability ratios, such as the Return on Equity, Return on Assets and efficiency ratio Operating Efficiency, were collected from Fitch Connect to analyze if early adopters were more profitable and efficient than the late adopters. Also, STATA is used to analyze descriptive statistics and a univariate analysis of both groups. Furthermore, the finding is that early adopters of the Basel III Leverage Ratio are not the more profitable or efficient firms compared to late adopters as anticipated. In addition, the results of early and late adopters do not differ that much in the analysis regarding profitability and efficiency ratios. This implies that it is not necessarily correct to assume that stricter regulation, such as Basel III, will negatively affect the profitability or efficiency of banks. In addition, these results are useful to regulators and policymakers of the G7 member countries for two reasons. Also, regulators can clearly see how banks are adopting new stricter regulation.

Keywords: Return on Equity; Return on Asset; Basel III Leverage Ratio (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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