The impact of regulatory reforms on European bank behaviour: A dynamic structural estimation


Jones, L, Alsakka, R ORCID: 0000-0003-0698-2730, ap Gwilym, O and Mantovan, N ORCID: 0000-0002-5930-4880 (2022) The impact of regulatory reforms on European bank behaviour: A dynamic structural estimation European Economic Review, 150. p. 104280. ISSN 0014-2921, 1873-572X

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Abstract

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.

Item Type: Article
Uncontrolled Keywords: Discrete choice dynamic programming (DCDP), Bank behaviour, Bail-in regime, Basel III regulation, Credit rating regulation
Divisions: Faculty of Humanities & Social Sciences > School of Management
Depositing User: Symplectic Admin
Date Deposited: 08 Sep 2022 09:18
Last Modified: 01 Mar 2026 10:39
DOI: 10.1016/j.euroecorev.2022.104280
Open Access URL: https://doi.org/10.1016/j.euroecorev.2022.104280
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URI: https://livrepository.liverpool.ac.uk/id/eprint/3163864
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