An in-depth look at banking stability
The global financial crisis has prompted experts and governments worldwide to investigate the dynamics of banking stability, banking competition, financial systems, regulatory frameworks and ownership of banks. The EU-funded project 'Banking system stability and bank regulation' (BANSYSREG) took up this challenge and conducted an in-depth study of several key banking issues, producing a wealth of papers and findings on the topic. In one confidential study, the project team demonstrated that private banks are less stable than government and cooperative banks. Publishing a paper on 'Bank Competition and Stability: Cross-country Heterogeneity', the team also showed how increased competition affects bank fragility, as well as implications for current regulatory reform debate. Another paper titled 'Bank Failure Resolution: A Conceptual Framework' discussed the trade-off in bank resolution between minimising the external costs of bank failure and imposing market discipline. The publication looked at how resolution is affected by regulatory, institutional and legal frameworks, as well as the variety of failure resolution tools and preferences in different banks. Investigating how banks' international activities affect regulatory frameworks, the paper 'Supervising Cross-Border Banks: Theory, Evidence and Policy' outlined the impact of foreign assets and deposits on the economy. It specifically examined how national regulators deal with banks that have a higher share of foreign deposits and assets, as well as a lower share of foreign equity. Also noteworthy was the paper on 'Supranational Supervision: How Much and for Whom?' This informative working paper discussed supervision of banks on the supra-national level, guided by cross-border externalities from bank failures and heterogeneity in bank failure costs. In addition, BANSYSREG supported new research related to the impacts of portfolio diversification and specialisation on bank stability. It helped compile a database resolution of bank issues and crises per country over the last two decades, touching on topics such as mergers, acquisitions, liquidation and restructuring. The research conducted and the papers offer valuable insights for supporting bank stability in the future.
Keywords
Banking system, private bank, bank regulations, bank failure, cross-border bank, mergers, acquisitions, liquidation
