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The impact of deregulation and re-regulation on bank efficiency: evidence from Asia

Deng, B., Casu, B. and Ferrari, A. (2014) The impact of deregulation and re-regulation on bank efficiency: evidence from Asia. In: Lindblom, T., Sjögren, S. and Willesson, M. (eds.) Governance, regulation and bank stability. Studies in Banking and Financial Institutions. Palgrave Macmillan, UK, pp. 100-128. ISBN 9781137413536

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To link to this item DOI: 10.1057/9781137413543

Abstract/Summary

Following the 1997 crisis, banking sector reforms in Asia have been characterised by the emphasis on prudential regulation, associated with increased financial liberalisation. Using a panel data set of commercial banks from eight major Asian economies over the period 2001-2010, this study explores how the coexistence of liberalisation and prudential regulation affects banks’ cost characteristics. Given the presence of heterogeneity of technologies across countries, we use a stochastic frontier approach followed by the estimation of a deterministic meta-frontier to provide ‘true’ estimates of bank cost efficiency measures. Our results show that the liberalization of bank interest rates and the increase in foreign banks' presence have had a positive and significant impact on technological progress and cost efficiency. On the other hand, we find that prudential regulation might adversely affect bank cost performance. When designing an optimal regulatory framework, policy makers should combine policies which aim to foster financial stability without hindering financial intermediation.

Item Type:Book or Report Section
Refereed:Yes
Divisions:Faculty of Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
ID Code:64830
Publisher:Palgrave Macmillan

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