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Do Regulatory and Supervisory Reforms Affect European Bank Stability: Further Evidence from Panel Data

Hachmi Ben Ameur, Faten Ben Bouheni, Abdoulkarim Idi Chefou and Fredj Jawadi ()
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Hachmi Ben Ameur: Groupe INSEEC
Faten Ben Bouheni: ISC Paris Business School, France
Abdoulkarim Idi Chefou: EDC Paris Business School, France

Bankers, Markets & Investors, 2016, issue 141, 58-70

Abstract: This paper investigates the impact of regulatory and supervisory reforms on the risk-taking by European banks in the context of the subprime crisis. To this end, we employed data for six European countries (France, Germany, the UK, Spain, Italy and Greece) over the period 2005-2011, applying the Generalized Method of Moments (GMM). Our investigation pointed to three interesting findings. First, in France, Germany and the UK, supervisory power appears to boost banking stability (reduce bank’s risk-taking), while restrictions on banking activities, deposit insurance and capital adequacy encourage risky behavior, confirming the view that a strongly regulated institutional environment encourages risk-taking. Second, tightening regulations and supervision appears to weaken banking stability in Italy, Greece and Spain as, with more supervisory power, the largest banks tend to take greater risks. Third, the strongly regulated institutional environment enhances financial stability in Europe, while European banks with a higher rate of asset growth tend to have higher risk appetite.

Keywords: European banks, Banking Supervision; Risk-taking; Dynamic Panel (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 C23 (search for similar items in EconPapers)
Date: 2016
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