This empirical study investigates whether a strong bank culture may help strengthen, weaken, or have no effect on the relationship between regulatory capital and liquidity creation. Using a machine learning approach and banks’ 10-K reports, we first measure the corporate culture of selected bank holding companies (BHCs) in the United State (U.S.) over the period between 1995 and 2019. We find that bank culture does affect the link between regulatory capital and liquidity creation. In particular, while we find that regulatory capital has a negative impact on bank liquidity creation, a strong culture in a bank weakens this negative association. We also find that an increase in asset-side liquidity creation is the main channel through which bank culture exerts its moderating role. Finally, our results are largely driven by smaller banks, banks with a more traditional funding structure and more profitable banks. The results of this study suggest that regulators should consider bank culture as being a crucial element in the monitoring approach when designing bank regulation and supervision.

Wealth Management Products (WMPs) have become a major source of bank funding over the past decade. Using a unique WMP transactions dataset from China covering 99,893 transactions during 2010-2020, this study examines whether greater reliance on WMPs as a type of funding innovation increases bank systemic risk. We find that higher WMP dependence significantly elevates systemic risk, with the effects concentrated among smaller banks. Exploiting the 2018 Asset Management Regulation as an exogenous shock, we establish causality using a difference-in-differences approach. Our channel analysis shows that maturity mismatch amplifies WMP-related systemic risk, while higher WMP yields further increase fragility through funding cost pressures. Overall, these results call for a regulatory approach that moves beyond aggregate balance-sheet metrics and instead targets funding composition, maturity structure, and pricing behaviour-dimensions in which WMPs materially increase systemic vulnerability.

This paper analyzes the productivity and efficiency of Turkish banks from 2002 to 2010. We obtained estimates of efficiency, productivity growth and efficiency growth using a Bayesian stochastic frontier approach and focused on accounting for Non-Performing Loans (NPLs) for use in our model. Specifically, we introduce NPLs as a bad output in an input distance function, and estimate a system of non-linear equations subject to endogeneity. We confirm that the productivity growth of Turkish banks was positive over the period of this study, which was mainly due to the improvement in technology, while efficiency growth continued to be negative over the same period. Methodologically, we also prove that not accounting for NPLs in estimating the frontier model might seriously distort the efficiency and productivity results. The study also provides measures of shadow prices for NPL and discusses the results in terms of several interesting trends in Turkish banking. Finally, the paper provides efficiency and productivity comparisons between domestic and foreign banks.

This paper analyzes the productivity and efficiency of Shinkin banks and the various prefectures in Japan, over the period from 2000 to 2006. We obtain estimates of efficiency growth and productivity growth, using the bootstrapped Malmquist index, and estimates of efficiency using the Bayesian distance frontier approach. We confirm that the efficiency growth and productivity growth of Shinkin banks did not improve significantly over the period of this study. In addition, we show that the efficiency of Shinkin banks is homogenous, with little variation across the banks analyzed. Methodologically, we also prove that a failure to impose theoretical regularity on the distance function could lead to false conclusions about the average efficiency or efficiency ranking of Shinkin banks. The study also includes an analysis of the correlates of productivity and efficiency growth, and provides efficiency and productivity estimates of the prefectures in which the banks are located.

This paper investigates the process of banking integration in the EU15 countries and the Eurozone by testing for convergence in bank efficiency among commercial banks. We use a two-step approach: First we estimate efficiency by applying an innovative methodological approach that treats banks’ non-performing loans as an undesirable output. Second, we apply the Phillips and Sul (2007) panel convergence methodology to assess the convergence process in European banking. Our results indicate an overall decline in efficiency and no evidence of group convergence following the financial crisis. However, we find the presence of club formation with typically weak convergence. The heterogeneity displayed by the transition parameters for the individual countries and the notable decrease in competition levels post 2008 highlight the impact of the financial crisis on the integration process.

The objective of this study is to examine technical efficiency and productivity growth in the Indian banking sector over the period from 2004 to 2011. We apply an innovative methodological approach introduced by Chen et al. (2011) and Barros et al. (2012), who use a weighted Russell directional distance model to measure technical inefficiency. We further modify and extend that model to measure TFP change with NPLs. We find that the inefficiency levels are significantly different among the three ownership structure of banks in India. Foreign banks have strong market position in India and they pull the production frontier in a more efficient direction. SPBs and domestic private banks show considerably higher inefficiency. We conclude that the restructuring policy applied in the late 1990s and early 2000s by the Indian government has not had a long-lasting effect.

The Japanese banking system provides a distinctive platform for the examination of the long-lasting effect of problem loans on efficiency. We measure technical efficiency by modifying a translog enhanced hyperbolic distance function with two undesirable outputs, identified as problem loans and problem other earning assets. Our unique database allows us to distinguish between bankrupt and restructured loans to investigate the underlying causality between these loans and efficiency. From the flexible panel vector autoregression specification, primary results reveal that bankrupt loans have a positive impact on efficiency related to the “moral hazard, skimping” hypothesis, with the causality originating from bankrupt loans. In contrast, findings for the relationship between restructured loans and efficiency support the “bad luck” hypothesis.

The paper examines the performance of US no-load equity mutual funds. Fund performance is derived using stochastic frontier analysis for a flexible functional form. This analysis allows us to derive parametric estimates of efficiency scores for each fund in our sample for the first time in the literature. Our results indicate that US no-load equity funds display varying levels of efficiency over time but also depending on size and on investment style. Robustness analysis reaffirm the efficiency scores remain consistent across different selections of inputs and outputs as well as the underlying distribution of the return. Having estimated each fund’s efficiency in the sample we unveil their underlying dynamics, also with respect to risk and operational characteristics such as flows, assets, and Morningstar star ratings. Panel-VAR estimations reveal that the response of funds’ efficiency to a shock in risk is positive and substantial. Some evidence of reverse causality is also observed. Finally, we extend our analysis to investigate the relationship between funds performance and key covariates across subgroups defined by size.

This paper investigates whether inclusive banking can boost bank-level performance, using an international sample of 1,740 banks over the period 2004-2015. We find that there is a significant positive association between financial inclusion and bank efficiency. Greater financial inclusion helps banks in reducing the volatility of their deposit-funding share as it provides more stable long-term funds for banks, while also mitigating the adverse effects of their return volatility. The association is stronger in countries with limited restrictions on banking activities or more capital regulation stringency as the deposit channel enables greater flow of low-cost funds for high-return investments. The results are robust to instrumental variable analysis, multiple dimensions of financial inclusion (supply, demand, and pro-access policy), and a difference-in-differences estimator that exploits cross-country and temporal variations in actively promoting an inclusive agenda, further confirming that inclusive financial development can be beneficial for banks.