ABSTRACT
We study the design of stress tests that provide information about aggregate and idiosyncratic risk in banks' portfolios and impose contingent capital requirements. In the optimal static test, an adverse scenario fails all weak and some strong banks, limiting the stigma of failure. Sequential tests outperform static tests. Under natural conditions, the optimal sequential test consists of a precautionary recapitalization, followed by a scenario that fails only weak banks, similar to TARP in 2008, followed by SCAP in 2009. Our results also shed light on the Federal Reserve's decision to test the banks twice in 2020 during the COVID-19 pandemic. Authors have furnished an , which is available on the Oxford University Press Web site next to the link to the final published paper online.
ABSTRACT
We examine the effect of COVID-19-induced lockdown on the profitability of listed firms in India. We use quarterly income statement of 4168 listed firms for the period between April–June 2020 quarter and April–June 2022 quarter and compare their financial data with previous quarters (2015–2019). Using a difference-in-difference estimation framework and various profitability measures, we find that the COVID-19 lockdown has reduced profits by around 15 per cent for listed firms in India. Our results are robust to various robustness tests and alternate specifications. We find evidence of firms losing revenues more than expenses, thus leading to decline in profits. The main effect is conditioned by firm-specific factors. Specifically, firms that are smaller, older, unlisted and that do not belong to any group witnessed larger decline in profitability due to lockdown. Additionally, the effect of lockdown is more pronounced in areas that had lower mobility and higher COVID-19 spread. These results underscore the importance of institutional factors and pre-existing firm characteristics in conditioning the impact of lockdown on firm profitability. © 2023 The Economic Society of Australia.
ABSTRACT
The formation of a customs administration framework based on the digital economy in the Eurasian Economic Union (EAEU) requires the application of fundamentally new technologies. The successful implementation of digital technologies in the information space of the EAEU presupposes the solution of a number of problems associated with the ensuring the implementation of the concept of sustainable development of the EEU member states in the new economic reality and transition to a new paradigm of customs administration based on the digitalization of the processes of regulation of foreign economic activity. Based on this paradigm, we set the following tasks: to identify trends and substantiate the need for digitalization of the customs administration mechanism in the Eurasian Economic Union based on the use of new technologies;to reveal the meaningful features of digital technologies that are promising for the development of the mechanism of customs administration of the EAEU;consider the applied aspects of the latest information technologies used in the course of EAEU customs administration system digitalization;and assess the prospects for their use, analyze the prospects of organizational, legal and managerial support of this process in the EAEU at the supranational and national levels. The article concludes that within the framework of the digital transformation of the EAEU, new opportunities are opening up for the customs regulation framework, based on the introduction of technologies for analyzing large amounts of data, immersive technologies, blockchain, the use of innovative methods for obtaining and processing customs information (satellite tracking, radio frequency identification), and the introduction of artificial intelligence technologies in customs control processes.
ABSTRACT
Purpose This paper aims to investigate the impact of regulation and market competition on the risk-taking Behaviour of financial institutions in the Middle East and North Africa (MENA) region. Design/methodology/approach The empirical framework is based on panel fixed effects/random effects specification. For robustness purpose, this study also uses the generalized method of moments estimation technique. This study tests the hypothesis that regulatory capital requirements have a significant effect on financial stability of Islamic and conventional banks (CBs) in the MENA region. This study also investigates the moderating effect of market power and concentration on the relationship between capital regulation and bank risk. Findings The estimation results support the view that capital adequacy ratio (CAR) has no significant impact on credit risk of Islamic banks (IBs), whereas market competition does play a significant role in shaping the risk behavior of these institutions. This study report opposite results for CBs - an increase in the minimum capital requirements is followed by an increase in a bank's risk level, which has a negative impact on their financial stability. Furthermore, the results support the notion of a non-linear relationship between banking concentration and bank risk. The findings inform the regulatory authorities concerned with improving the financial stability of banking sector in the MENA region to set their policy differently depending on the level of concentration in the banking market. Research limitations/implications This study contributes to the literature on the effectiveness of regulatory reforms (in this case, capital requirements) and market competition for bank performance and risk-taking. In regard to IBs, capital requirements are less effective in requiring IBs to adjust their risk level according to the Basel III methodology. This study finds that IBs' risk behavior is strongly associated with market competition, and therefore, the interest rates. Moreover, banks operating in markets with high banking concentration (but not necessarily, low competition), will decrease their credit risk level in response to an increase in the minimum capital requirements. As a result, these banks will be more stable compared to their conventional peers. Thus, regulators and policymakers in the MENA region should restrict the risk-taking behavior of IBs through stringent capital requirements and more intense banking supervision. Practical implications The practical implications of these findings are that the regulatory authorities concerned with improving banking sector stability in the MENA region should proceed differently, depending on the level of banking market concentration. The findings inform regulators and policymakers to set capital requirements at levels that would restrict banks from taking more risk to increase their returns. They are also important for bank managers who should avoid risky strategies in response to increased regulatory pressure (e.g. increase in the minimum required capital level of 8%), as they may lead to an increase in the level of non-performing loans, and therefore, a greater probability of bank default. A future extension of this study will focus on testing the effect of bank risk-taking and market competition on the capitalization levels of banks in the MENA countries. More specifically, this study will investigates if banks raise their capitalization levels during the COVID-19 pandemic. Originality/value The analysis of previous research indicates that there is no unambiguous answer to the question of whether IBs perform differently than CBs under different competitive conditions. To fill this gap, this study examines the influence of capital regulation and market competition (both individually and interactively) on bank risk-taking behavior using a large sample of banking institutions in 18 MENA countries over 14 years (2005-2018). For the first time in this line of research, this study shows that the level of market power is positively associated with the level of a bank' insolvency risk. In others words, IBs operating in highly competitive markets are more inclined to take a higher risk than their conventional peers. Regarding the IBs credit risk behavior, this study finds that market power has a limited impact on the relationship between CAR and risk level. This means that IBs are still applying in their operations the theoretical models based on the prohibition of interest.