Journal of Banking Regulation

, Volume 15, Issue 2, pp 105–116

Regulations and bank risk taking in dual banking countries

Original Article

DOI: 10.1057/jbr.2012.15

Cite this article as:
Alam, N. J Bank Regul (2014) 15: 105. doi:10.1057/jbr.2012.15

Abstract

This study investigates the linkages between the banking regulatory and supervisory structures associated with the pillars of Basel III and the risk taking of banks. Given a well-established set of theoretical priors, the regulations considered in this study are official supervisory power, capital requirements, private monitoring and restrictions on bank activities. The analysis focuses on the dual banking system over the period 2006–2010. Our results suggest that higher capital requirements induce a lower level of risk behaviours for both conventional and Islamic banks. We observed the opposite effect in the case of restrictions on bank activities; higher restrictions had a positive influence on the risk-taking behaviour of conventional banks, whereas they reduced the level of riskiness of Islamic banks. Finally, official supervisory power has an insignificant negative impact on the risk-taking behaviour of both Islamic banks and conventional banks.

Keywords

banking regulationbank riskdual banking

Copyright information

© Palgrave Macmillan, a division of Macmillan Publishers Ltd 2012

Authors and Affiliations

  1. 1.Nottingham University Business School, The University of Nottingham Malaysia CampusSemenyihMalaysia