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The Impact of Regulatory Reforms on European Bank Behaviour: A Dynamic Structural Estimation

Research output: Contribution to journal › Article › peer-review

Standard Standard

The Impact of Regulatory Reforms on European Bank Behaviour: A Dynamic Structural Estimation. / Jones, Laurence; Alsakka, Rasha; ap Gwilym, Owain et al.
In: European Economic Review, Vol. 150, 104280, 11.2022.

Research output: Contribution to journal › Article › peer-review

HarvardHarvard

Jones, L, Alsakka, R, ap Gwilym, O & Mantovan, N 2022, 'The Impact of Regulatory Reforms on European Bank Behaviour: A Dynamic Structural Estimation', European Economic Review, vol. 150, 104280. https://doi.org/10.1016/j.euroecorev.2022.104280

APA

Jones, L., Alsakka, R., ap Gwilym, O., & Mantovan, N. (2022). The Impact of Regulatory Reforms on European Bank Behaviour: A Dynamic Structural Estimation. European Economic Review, 150, Article 104280. https://doi.org/10.1016/j.euroecorev.2022.104280

CBE

Jones L, Alsakka R, ap Gwilym O, Mantovan N. 2022. The Impact of Regulatory Reforms on European Bank Behaviour: A Dynamic Structural Estimation. European Economic Review. 150:Article 104280. https://doi.org/10.1016/j.euroecorev.2022.104280

MLA

Jones, Laurence et al. "The Impact of Regulatory Reforms on European Bank Behaviour: A Dynamic Structural Estimation". European Economic Review. 2022. 150. https://doi.org/10.1016/j.euroecorev.2022.104280

VancouverVancouver

Jones L, Alsakka R, ap Gwilym O, Mantovan N. The Impact of Regulatory Reforms on European Bank Behaviour: A Dynamic Structural Estimation. European Economic Review. 2022 Nov;150:104280. Epub 2022 Sept 13. doi: 10.1016/j.euroecorev.2022.104280

Author

Jones, Laurence ; Alsakka, Rasha ; ap Gwilym, Owain et al. / The Impact of Regulatory Reforms on European Bank Behaviour: A Dynamic Structural Estimation. In: European Economic Review. 2022 ; Vol. 150.

RIS

TY - JOUR

T1 - The Impact of Regulatory Reforms on European Bank Behaviour: A Dynamic Structural Estimation

AU - Jones, Laurence

AU - Alsakka, Rasha

AU - ap Gwilym, Owain

AU - Mantovan, Noemi

PY - 2022/11

Y1 - 2022/11

N2 - This paper develops a dynamic structural model of bank behaviour. Banks can vary their financing structure, business model and decide on rating solicitation, in the presence of costly debt, corporation tax, insolvency costs and convex adjustment costs. The model is then simulated to examine the impact of regulation on banks’ behaviour. A bail-in regime leads to reduced bank lending activity, while having little impact on bank insolvency rates. Stringent capital requirements reduce bank insolvency rates in a crisis period, while mitigating the reduction in lending activity due to an increased uptake in marginal investments. More lenient credit ratings are associated with increased bank failures. These findings offer wide-ranging implications for policy makers and the banking industry.

AB - This paper develops a dynamic structural model of bank behaviour. Banks can vary their financing structure, business model and decide on rating solicitation, in the presence of costly debt, corporation tax, insolvency costs and convex adjustment costs. The model is then simulated to examine the impact of regulation on banks’ behaviour. A bail-in regime leads to reduced bank lending activity, while having little impact on bank insolvency rates. Stringent capital requirements reduce bank insolvency rates in a crisis period, while mitigating the reduction in lending activity due to an increased uptake in marginal investments. More lenient credit ratings are associated with increased bank failures. These findings offer wide-ranging implications for policy makers and the banking industry.

KW - Discrete Choice Dynamic Programming (DCDP)

KW - Bank behaviour

KW - Bail-in regime

KW - Basel III regulation

KW - Credit rating regulation

U2 - 10.1016/j.euroecorev.2022.104280

DO - 10.1016/j.euroecorev.2022.104280

M3 - Article

VL - 150

JO - European Economic Review

JF - European Economic Review

SN - 0014-2921

M1 - 104280

ER -