FFA Working Papers 3:001 (2021)924

Banking Supervision and Risk-Adjusted Performance inthe Host Country Environment

Karel Janda, Oleg Kravtsov
Department of Banking and Insurance, Faculty of Finance and Accounting, Prague University of Economics and Business

In this paper, we examine the impact of the supervision as a monitoring activity and regulatory scrutiny on the performance and riskiness of the financial institutions in countries of Central, Eastern and South-Eastern Europe, whose banking sectors are characterized by foreign-bank dominated systems. For a dataset of 450 banks from 20 economies of the region, we use statistics from the World Bank-Bank Regulation and Supervisory Survey to construct the measures of the supervision activities, capital regulation stringency and supervisory power. We find that a higher intensity of supervision monitoring activities, especially by the centralized form of supervision, contributes to the decline of the bank's riskiness in case of larger banks while not affecting their economic performance. The regulatory power and stringency indicate a positive effect on the risk-adjusted performance for capital constrained banks, but moderately decrease the economic benefit for larger banks. The findings highlight the potential area of attention for regulators and policymakers and thus, contribute to the designing of effective supervision mechanism in the region.

Keywords: supervision; financial regulation; RAROC; causal mediation analysis; moderation analysis; Central Eastern and South-Eastern Europe
JEL classification: G20, G21, G28

Received: November 19, 2020; Revised: November 19, 2020; Accepted: December 3, 2020; Published online: January 1, 2021  Show citation

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Janda, K., & Kravtsov, O. (2021). Banking Supervision and Risk-Adjusted Performance inthe Host Country Environment. FFA Working Papers, 3, Article 2021.001. https://doi.org/10.XXXX/xxx.2020.006
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