The impact of regulations on banking efficiency in the aftermath of the financial crisis of 2008

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Golchha, Amit
Issue Date
MA of Business Administration
Dublin Business School
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This piece of work aims to quantify and draw conclusions by measuring the impact of regulatory rules individually in the post-crisis period versus the impact which earlier regulations had on banks in the pre-crisis period and in turn an ability to predict the impact of these variables of regulatory nature on the future of the banking industry in Europe. My analysis considers an 8 year time period of banks operating in the financial markets of the countries in European Union to determine the effect of changes in regulation rules on the efficiency of banks. To achieve this, I apply the Stochastic Frontier Analysis (SFA) model to estimate the profit and cost efficiency scores by combining the effects of regulatory determinants of efficiency and the impact they individually have on the overall efficiency of these banks. Our results derive the main results that firstly, a high bank cost efficiency does not necessarily imply a high profit efficiency. Secondly, there was found to be a disadvantageous impact of the increase in market participants on the existing banks, the level of development of individual financial environments and the cost efficiency of non-domestic banks. Evidence was also found regarding the positive impact of rules that relate to the independence of the supervisory authority and coverage of private sector units that increase the transparency in the financial markets. also derived the negative effect of scope of business and diversification restrictions. However, the derivations regarding the financial crisis period often have shown us in the study the impact of different variables in an unexpected trend which relate to the part of time periods I consider in this study.