TITLE:
Banking Regulation Effects on African Banks’ Stability
AUTHORS:
Ayodeji Michael Obadire
KEYWORDS:
Africa Banks, Capital Buffer, Global Financial Crisis, Liquidity Coverage Ratio, Panel Data, Stability
JOURNAL NAME:
Journal of Financial Risk Management,
Vol.11 No.4,
November
10,
2022
ABSTRACT: The 2008/2009 global financial crisis exposed the
fragility of banking regulations, specifically the Basel II Accord in
protecting banks from financial failure. As
a result of this, the Basel III Accord came to bear. Banks’ stability promotes
the confidence of stakeholders which is one of the major aims of the global
Basel III banking regulations. Despite this, there is limited adoption of
this Accord and scant evidence of the effect of Basel III regulations on banks’
stability within the African context. This study aims to determine whether the
Basel III regulatory requirements at a multi-component level have an impact on
the stability of African banks. The study
employed the pooled ordinary least square estimator to fit the static panel
data model established for the study. Panel data from 45 banks in six African
countries were used. The findings revealed that in contrast to the popular expectation of the Basel
III Accord, the minimum capital requirement, capital adequacy ratio, and
capital buffer premium had a negative and
insignificant relationship with the stability of banks within the African context whilst the liquidity coverage ratio stood out significantly with a positive effect on the banks’ stability. Based on
these findings, the study recommends that African Bank regulators and CEOs
should maintain a liquidity coverage ratio
that is within the Basel III threshold and increase their current minimum
capital requirement above the average of 13.59% to maintain stability and boost stakeholders’ confidence.