Banking Regulations, Cost and Profit Efficiency: Cross-Country Evidence

34 Pages Posted: 9 Mar 2008 Last revised: 28 Sep 2012

See all articles by Fotios Pasiouras

Fotios Pasiouras

GSCM-Montpellier Business School

Sailesh K. Tanna

Coventry University

C. Zopounidis

Technical University of Crete (TUC) - Department of Production Engineering and Management

Date Written: March 1, 2008

Abstract

This paper uses stochastic frontier analysis to provide international evidence on the impact of the regulatory and supervision framework on bank efficiency. Our dataset consists of 2,853 observations from 615 publicly quoted commercial banks operating in 74 countries during the period 2000-2004. We investigate the impact of regulations related to restrictions on bank activities and the three pillars of Basel II on cost and profit efficiency of banks, while controlling for other country-specific characteristics. Our results suggest that regulations and incentives that enhance market discipline, and higher supervisory power of the authorities, increase both cost and profit efficiency. Stricter capital requirements have a positive impact on cost efficiency but negative impact on profit efficiency. We observe the opposite effect in the case of restrictions on bank activities, with higher restrictions having a negative influence on cost efficiency but positive influence on profit efficiency.

Keywords: Banking, Efficiency, Regulations, Stochastic frontier analysis

JEL Classification: G21, G28, D2, C24

Suggested Citation

Pasiouras, Fotios and Tanna, Sailesh K. and Zopounidis, Constantin, Banking Regulations, Cost and Profit Efficiency: Cross-Country Evidence (March 1, 2008). International Review of Financial Analysis, 2009, 18 (5), 294-302 , Available at SSRN: https://ssrn.com/abstract=1103436

Fotios Pasiouras (Contact Author)

GSCM-Montpellier Business School ( email )

2300, Avenue des Moulins
Montpellier, 34185
France

Sailesh K. Tanna

Coventry University ( email )

Coventry
United Kingdom

Constantin Zopounidis

Technical University of Crete (TUC) - Department of Production Engineering and Management ( email )

University Campus
Chania
Crete, 73100
Greece
+30 28210 37236 (Phone)
+30 28210 69410, 37236 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,045
Abstract Views
3,985
Rank
39,431
PlumX Metrics