The Determinants of Systemic Banking Crises A Regulatory Perspective

Using a sample of 75 developed and emerging economies covering the period 1998-2011 we show that the enhanced Basel III Accord variables Tier-1 capital and the new liquidity measure known as the Net Stable Funding Ratio (NSFR), when measured in levels, do not feature as systemic banking crisis determinants. Neither does distance from the minimum standard, in either direction, matter. However the compound annual growth rate of Tier-1 capital is shown to be significantly associated with overall financial-services stability. Certain aspects of the regulatory environment are shown to contribute positively towards systemic risk mitigation whereas others do not. For example by restricting the breadth of trading activities permitted to banks, banking sectors are made stable. However regimes where capital adequacy standards are rigorously enforced are no more robust than their less strictly-enforced counterparts