TY - JOUR
T1 - Bank regulation, risk and return
T2 - evidence from the credit and sovereign debt crisis
AU - Hoque, Hafiz
AU - Andriosopoulos, Dimitris
AU - Andriosopoulos, Kostas
AU - Douady, Raphael
N1 - NOTICE: This is the author's version of a work that was accepted for publication in Journal of Banking & Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking & Finance, 2014, DOI: http://dx.doi.org/10.1016/j.jbankfin.2014.06.003
PY - 2015/1/31
Y1 - 2015/1/31
N2 - In this paper, we analyze whether regulation reduced risk during the credit crisis and the sovereign debt crisis for a cross section of global banks. In this regard, we examine distance to default (Laeven and Levine, 2008), systemic risk (Acharya et al., 2010), idiosyncratic risk, and systematic risk. We employ World Bank survey data on regulations to test our conjectures. We find that regulatory restrictions, official supervisory power, capital stringency, along with private monitoring can explain bank risk in both crises. Additionally, we find that deposit insurance schemes enhance moral hazard, as this encouraged banks to take on more risk and perform poorly during the sovereign debt crisis. Finally, official supervision and private monitoring explains the returns during both crisis periods.
AB - In this paper, we analyze whether regulation reduced risk during the credit crisis and the sovereign debt crisis for a cross section of global banks. In this regard, we examine distance to default (Laeven and Levine, 2008), systemic risk (Acharya et al., 2010), idiosyncratic risk, and systematic risk. We employ World Bank survey data on regulations to test our conjectures. We find that regulatory restrictions, official supervisory power, capital stringency, along with private monitoring can explain bank risk in both crises. Additionally, we find that deposit insurance schemes enhance moral hazard, as this encouraged banks to take on more risk and perform poorly during the sovereign debt crisis. Finally, official supervision and private monitoring explains the returns during both crisis periods.
KW - distance to default
KW - systemic risk
KW - idiosyncratic risk
KW - beta
KW - buy-and-hold returns
KW - regulations
UR - http://www.journals.elsevier.com/journal-of-banking-and-finance
U2 - 10.1016/j.jbankfin.2014.06.003
DO - 10.1016/j.jbankfin.2014.06.003
M3 - Article
SN - 0378-4266
VL - 50
SP - 455
EP - 474
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
ER -
