Pub Date : 2022-02-16DOI: 10.1108/jfrc-04-2021-0037
Safa Jallali, Faten Zoghlami
Purpose Relying on the agency theory and the financial intermediation theory, the purpose of this paper is to examine to what extent risk governance would improve corporate governance and risk management effectiveness. The paper especially investigates the mediating role that would have the risk governance mechanisms in explaining both of the following relationships: the corporate governance–the banks’ performance, and the risk management–the banks’ performance. Design/methodology/approach This research uses the Baron and Kenny’s (1986) approach to investigate the mediating effect of risk governance; besides, the study refers to structural equation modeling in carrying out the appropriate panel regressions. The data collection was based largely on Bank scope Database, but some missing qualitative data were gathered manually from the banks’ annual reports available on the banks’ websites. Findings The study findings illustrate the significant role of risk governance mechanisms in improving both corporate governance and risk management’s effectiveness. Especially, this paper finds that risk governance is fully explaining the corporate governance–bank performance relationship, but risk governance would explain partially the risk management–bank performance relationship. Further, findings suggest that the internal corporate governance mechanisms seem to be more relevant than the external ones in improving the sample bank performance, and that risk management mechanisms seem to impede rather the sample bank performance. Practical implications The findings would make an important contribution to the current debate on the need to reinvent the optimal organization of the bank’s board and directorates and would allow readers to develop more cost-effective governance and risk-management thinking. Besides, the findings may help bank deciders and boards to rationalize costs and to focus only on the relevant corporate governance and risk management mechanisms. Finally, findings might illustrate to regulatory instance the importance of recommending risk governance in their coming corporate governance guidance. Social implications The global credit crisis of 2008 caused significant difficulties to financial institutions, so it would be worth enlightening practitioners and policymakers, even regulators, on the importance of considering the level of potential risk and risk monitoring as a key component in the decision-making process, to strengthen the stability and resilience of banks in an increasingly uncertain environment. Originality/value The issues raised in the paper are important in that Islamic banking is an integral part of the global banking and finance industry. This paper extends the knowledge of the potential importance of the new concept of risk governance with specific reference to Islamic banking industry peculiarities. It also provides a telling illustration of the need for the enhancements of the Basel Committee’s prudential requirem
{"title":"Does risk governance mediate the impact of governance and risk management on banks’ performance? Evidence from a selected sample of Islamic banks","authors":"Safa Jallali, Faten Zoghlami","doi":"10.1108/jfrc-04-2021-0037","DOIUrl":"https://doi.org/10.1108/jfrc-04-2021-0037","url":null,"abstract":"\u0000Purpose\u0000Relying on the agency theory and the financial intermediation theory, the purpose of this paper is to examine to what extent risk governance would improve corporate governance and risk management effectiveness. The paper especially investigates the mediating role that would have the risk governance mechanisms in explaining both of the following relationships: the corporate governance–the banks’ performance, and the risk management–the banks’ performance.\u0000\u0000\u0000Design/methodology/approach\u0000This research uses the Baron and Kenny’s (1986) approach to investigate the mediating effect of risk governance; besides, the study refers to structural equation modeling in carrying out the appropriate panel regressions. The data collection was based largely on Bank scope Database, but some missing qualitative data were gathered manually from the banks’ annual reports available on the banks’ websites.\u0000\u0000\u0000Findings\u0000The study findings illustrate the significant role of risk governance mechanisms in improving both corporate governance and risk management’s effectiveness. Especially, this paper finds that risk governance is fully explaining the corporate governance–bank performance relationship, but risk governance would explain partially the risk management–bank performance relationship. Further, findings suggest that the internal corporate governance mechanisms seem to be more relevant than the external ones in improving the sample bank performance, and that risk management mechanisms seem to impede rather the sample bank performance.\u0000\u0000\u0000Practical implications\u0000The findings would make an important contribution to the current debate on the need to reinvent the optimal organization of the bank’s board and directorates and would allow readers to develop more cost-effective governance and risk-management thinking. Besides, the findings may help bank deciders and boards to rationalize costs and to focus only on the relevant corporate governance and risk management mechanisms. Finally, findings might illustrate to regulatory instance the importance of recommending risk governance in their coming corporate governance guidance.\u0000\u0000\u0000Social implications\u0000The global credit crisis of 2008 caused significant difficulties to financial institutions, so it would be worth enlightening practitioners and policymakers, even regulators, on the importance of considering the level of potential risk and risk monitoring as a key component in the decision-making process, to strengthen the stability and resilience of banks in an increasingly uncertain environment.\u0000\u0000\u0000Originality/value\u0000The issues raised in the paper are important in that Islamic banking is an integral part of the global banking and finance industry. This paper extends the knowledge of the potential importance of the new concept of risk governance with specific reference to Islamic banking industry peculiarities. It also provides a telling illustration of the need for the enhancements of the Basel Committee’s prudential requirem","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2022-02-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42580793","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-01-28DOI: 10.1108/jfrc-03-2021-0019
Adamu Yahaya, Fauziah Mahat, Yahya M.H., B. T. Matemilola
Purpose This study aims to examine the effect of liquidity risk on deposit money banks’ (DMBs) performance in Sub-Saharan Africa. This study also tests the interaction effect of liquidity risk and nonperforming loans on the performance of DMBs’ in Sub-Saharan Africa. Design/methodology/approach This study uses a two-step system generalized method of moment to test the influence of liquidity risk on DMBs’ performance in Sub-Saharan Africa. A sample of 50 listed banks across six Sub-Saharan African countries, including Nigeria, Ghana, South Africa, Zambia, Kenya and Tanzania, were used. The bank performance proxy used are return on asset and return on equity, while net interest margin is used for robustness check. Findings The study’s findings reveal a significant and negative association between liquidity risk and bank performance. Moreover, the relationship between the nonperforming loan and bank performance is negative and significant. Furthermore, the interaction effect of liquidity risk and nonperforming loans on bank performance is found to be significantly negative for the two proxies of bank performance. The result is robust for the alternative bank performance measurements and econometric model, which adequately addresses endogeneity tendency. Originality/value To the best of the researchers’ knowledge, this is one of the earliest empirical studies that examine the effect of liquidity risk on DMBs’ performance across Sub-Saharan African countries. This study further differs from previous studies with the interaction term of liquidity risk and nonperforming loan included in the model.
{"title":"Liquidity risk and bank financial performance: an application of system GMM approach","authors":"Adamu Yahaya, Fauziah Mahat, Yahya M.H., B. T. Matemilola","doi":"10.1108/jfrc-03-2021-0019","DOIUrl":"https://doi.org/10.1108/jfrc-03-2021-0019","url":null,"abstract":"\u0000Purpose\u0000This study aims to examine the effect of liquidity risk on deposit money banks’ (DMBs) performance in Sub-Saharan Africa. This study also tests the interaction effect of liquidity risk and nonperforming loans on the performance of DMBs’ in Sub-Saharan Africa.\u0000\u0000\u0000Design/methodology/approach\u0000This study uses a two-step system generalized method of moment to test the influence of liquidity risk on DMBs’ performance in Sub-Saharan Africa. A sample of 50 listed banks across six Sub-Saharan African countries, including Nigeria, Ghana, South Africa, Zambia, Kenya and Tanzania, were used. The bank performance proxy used are return on asset and return on equity, while net interest margin is used for robustness check.\u0000\u0000\u0000Findings\u0000The study’s findings reveal a significant and negative association between liquidity risk and bank performance. Moreover, the relationship between the nonperforming loan and bank performance is negative and significant. Furthermore, the interaction effect of liquidity risk and nonperforming loans on bank performance is found to be significantly negative for the two proxies of bank performance. The result is robust for the alternative bank performance measurements and econometric model, which adequately addresses endogeneity tendency.\u0000\u0000\u0000Originality/value\u0000To the best of the researchers’ knowledge, this is one of the earliest empirical studies that examine the effect of liquidity risk on DMBs’ performance across Sub-Saharan African countries. This study further differs from previous studies with the interaction term of liquidity risk and nonperforming loan included in the model.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2022-01-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48194575","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-01-14DOI: 10.1108/jfrc-04-2021-0027
Adel Almasarwah, Wasfi Alrawabdeh, W. Masadeh, Munther Al-Nimer
Purpose The purpose of this paper is to explore the link between earnings quality, Audit Committees and the Board of companies located in Jordan through the lens of enhancing corporate governance. Design/methodology/approach The real earnings management (REM) and accruals earnings management models were notably used within the panel data robust regression analysis approach; these were used against certain Audit Committee characteristics (i.e. meeting frequency, amount of Board and Committee participants [both internal and external], size) and Board of Directors. Findings The former characteristics were found to have a positive relationship with REM, while the latter yielded mixed results: while there was no significant identifiable relationship between Board outsiders and REM, there was a positive relationship identified between Board meetings, Board insiders and Board size and REM. In regard to this study’s limitations, the qualitative data gathered for the Board of Directors through the lens of corporate governance enhancement should have been documented with more detail; furthermore, the study was limited to the study of just one nation. Research limitations/implications The data is limited to only a single country. More explanation for Board of Directors need qualitative understandings into corporate governance improvement. The control variables are essentially partial in a developing market context. Practical implications The different corporate governance code and guidelines improvements have varied influence on earnings quality. As predictable, boards of directors most effect on earnings quality. Improvements have included most modification to audit committees but through them slight measured effect on earnings quality. Social implications Jordan’s corporate governance improvements expected organised corporate governance practices generally in place amongst its boards, and though invoking considerable modification to audit committees, eventually included slight modification to earnings quality. However, both improved earnings quality. Originality/value This particular research appears to be the first to consider both Audit Committee and Board of Directors characteristics in one model; indeed, in this vein, this research is also the first to explore the corporate governance enhancements that initially stemmed from there being zero code or guideline regarding its use, despite it becoming required recently. Hence, the authors can say this study has high originality.
{"title":"Corporate governance: association the spots between institutional enhancement, organisational modification and earnings quality","authors":"Adel Almasarwah, Wasfi Alrawabdeh, W. Masadeh, Munther Al-Nimer","doi":"10.1108/jfrc-04-2021-0027","DOIUrl":"https://doi.org/10.1108/jfrc-04-2021-0027","url":null,"abstract":"\u0000Purpose\u0000The purpose of this paper is to explore the link between earnings quality, Audit Committees and the Board of companies located in Jordan through the lens of enhancing corporate governance.\u0000\u0000\u0000Design/methodology/approach\u0000The real earnings management (REM) and accruals earnings management models were notably used within the panel data robust regression analysis approach; these were used against certain Audit Committee characteristics (i.e. meeting frequency, amount of Board and Committee participants [both internal and external], size) and Board of Directors.\u0000\u0000\u0000Findings\u0000The former characteristics were found to have a positive relationship with REM, while the latter yielded mixed results: while there was no significant identifiable relationship between Board outsiders and REM, there was a positive relationship identified between Board meetings, Board insiders and Board size and REM. In regard to this study’s limitations, the qualitative data gathered for the Board of Directors through the lens of corporate governance enhancement should have been documented with more detail; furthermore, the study was limited to the study of just one nation.\u0000\u0000\u0000Research limitations/implications\u0000The data is limited to only a single country. More explanation for Board of Directors need qualitative understandings into corporate governance improvement. The control variables are essentially partial in a developing market context.\u0000\u0000\u0000Practical implications\u0000The different corporate governance code and guidelines improvements have varied influence on earnings quality. As predictable, boards of directors most effect on earnings quality. Improvements have included most modification to audit committees but through them slight measured effect on earnings quality.\u0000\u0000\u0000Social implications\u0000Jordan’s corporate governance improvements expected organised corporate governance practices generally in place amongst its boards, and though invoking considerable modification to audit committees, eventually included slight modification to earnings quality. However, both improved earnings quality.\u0000\u0000\u0000Originality/value\u0000This particular research appears to be the first to consider both Audit Committee and Board of Directors characteristics in one model; indeed, in this vein, this research is also the first to explore the corporate governance enhancements that initially stemmed from there being zero code or guideline regarding its use, despite it becoming required recently. Hence, the authors can say this study has high originality.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2022-01-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46690249","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-01-11DOI: 10.1108/jfrc-08-2021-0066
Rita Monteiro, Sónia Silva
Purpose The purpose of this study is to examine the impact of the transposition of the EU directive that regulates M&As on cross-border deals. Acquirers of targets located in the European Union (EU) must comply not only with takeover rules set individually by member states but also with European Council Directives. The most significant of these Directives in the context of mergers and acquisitions (M&As) is the Takeover Bids Directive (TBD). The intent of the Directive is to ensure equal treatment for all companies launching takeover bids or that are subject to a change in control, providing minimum harmonization rules in view of creating a transparent environment for cross-border takeovers. Design/methodology/approach This study uses the event-study and difference-in-differences approaches. Findings Using a sample of 2,129 M&As conducted between 2000 and 2015, this paper finds positive acquisition synergy for acquirers targeting firms from countries with stronger investor protection rules compared to the average of the EU, but no evidence regarding cross-border deals. The results support the prediction that regulation makes countries diverge more depending on their ex ante level of investor protection. Originality/value This study examines the impact of the enactment of the TBD on announcement returns of M&As in the EU.
{"title":"The impact of securities regulation in the European Union on M&A: Does it compensate to go beyond borders?","authors":"Rita Monteiro, Sónia Silva","doi":"10.1108/jfrc-08-2021-0066","DOIUrl":"https://doi.org/10.1108/jfrc-08-2021-0066","url":null,"abstract":"Purpose\u0000The purpose of this study is to examine the impact of the transposition of the EU directive that regulates M&As on cross-border deals. Acquirers of targets located in the European Union (EU) must comply not only with takeover rules set individually by member states but also with European Council Directives. The most significant of these Directives in the context of mergers and acquisitions (M&As) is the Takeover Bids Directive (TBD). The intent of the Directive is to ensure equal treatment for all companies launching takeover bids or that are subject to a change in control, providing minimum harmonization rules in view of creating a transparent environment for cross-border takeovers.\u0000\u0000\u0000Design/methodology/approach\u0000This study uses the event-study and difference-in-differences approaches.\u0000\u0000\u0000Findings\u0000Using a sample of 2,129 M&As conducted between 2000 and 2015, this paper finds positive acquisition synergy for acquirers targeting firms from countries with stronger investor protection rules compared to the average of the EU, but no evidence regarding cross-border deals. The results support the prediction that regulation makes countries diverge more depending on their ex ante level of investor protection.\u0000\u0000\u0000Originality/value\u0000This study examines the impact of the enactment of the TBD on announcement returns of M&As in the EU.","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2022-01-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44675059","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-12-22DOI: 10.1108/jfrc-10-2021-0086
Nadir Hussain, S. Sheikh, Ijaz Hussain Shah
Purpose Corruption and money laundering (ML) are severe concerns for both developing and developed countries. According to international organizations, such as Transparency International, the Basel Institute on Governance and the International Country Risk Guide, corruption and ML exist in every country. This research aims to investigate the impact of corruption and ML on the loan portfolio quality of banks. Design/methodology/approach From 2013 to 2019, this study used the panel data of 132 countries, including 87 highly corrupt and 45 least corrupt countries: the fixed effect and random effect econometric regression techniques for data analysis. Additionally, this study used the generalized methods of moment technique to check the result’s robustness. Findings This study shows that corruption and ML have diverse relationships with non-performing loans in highly corrupt and low corrupt countries. It is potentially because of the differences in the regulatory structure of a highly corrupt and least corrupt environment. Originality/value To the best of the authors’ knowledge, this study is the first attempt that provides a unique perspective on corruption, ML and its effect on the loan’s portfolio quality of banks. Furthermore, this study suggests that governments in highly corrupt environments develop robust anti-corruption and anti-ML regulations.
{"title":"Exploring the role of corruption and money laundering (ML) on bank’s loan portfolio quality: a cross-country investigation","authors":"Nadir Hussain, S. Sheikh, Ijaz Hussain Shah","doi":"10.1108/jfrc-10-2021-0086","DOIUrl":"https://doi.org/10.1108/jfrc-10-2021-0086","url":null,"abstract":"\u0000Purpose\u0000Corruption and money laundering (ML) are severe concerns for both developing and developed countries. According to international organizations, such as Transparency International, the Basel Institute on Governance and the International Country Risk Guide, corruption and ML exist in every country. This research aims to investigate the impact of corruption and ML on the loan portfolio quality of banks.\u0000\u0000\u0000Design/methodology/approach\u0000From 2013 to 2019, this study used the panel data of 132 countries, including 87 highly corrupt and 45 least corrupt countries: the fixed effect and random effect econometric regression techniques for data analysis. Additionally, this study used the generalized methods of moment technique to check the result’s robustness.\u0000\u0000\u0000Findings\u0000This study shows that corruption and ML have diverse relationships with non-performing loans in highly corrupt and low corrupt countries. It is potentially because of the differences in the regulatory structure of a highly corrupt and least corrupt environment.\u0000\u0000\u0000Originality/value\u0000To the best of the authors’ knowledge, this study is the first attempt that provides a unique perspective on corruption, ML and its effect on the loan’s portfolio quality of banks. Furthermore, this study suggests that governments in highly corrupt environments develop robust anti-corruption and anti-ML regulations.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2021-12-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41625187","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-11-30DOI: 10.1108/jfrc-06-2021-0049
Rexford Abaidoo, Elvis Kwame Agyapong
Purpose This paper aims to evaluate how strands of differing investments influence stability in the banking industry using data from 37 countries in Sub-Sahara Africa from 2000 to 2018. Design/methodology/approach Empirical analyses in the study were carried out using a two-step system Generalized Method of Moments estimation methodology. Findings Empirical results suggest that generally, growth in investments by governments, foreign investments and private domestic investments have a significant positive impact in stabilizing the banking industry. The empirical estimates further suggest that macroeconomic conditions such as macroeconomic uncertainty adversely affects the liquid reserve position of banks even during periods of appreciable growth in investments. Originality/value The authors present a different approach to the banking industry discourse. Instead of surmise the relationship with the direction of impact often emanating from the banking industry to other variables of interest or conditions, this study rather examines how investment dynamics among economies influence the stability of the banking industry overtime. In contrast to related studies, this study examines how strands of investment variables influence the stability of the banking industry. Specifically, this study is modeled to examine the extent to which variability in investment growth (using different investment variables) affect stability in the banking industry.
{"title":"Banking industry stability and investment dynamics","authors":"Rexford Abaidoo, Elvis Kwame Agyapong","doi":"10.1108/jfrc-06-2021-0049","DOIUrl":"https://doi.org/10.1108/jfrc-06-2021-0049","url":null,"abstract":"\u0000Purpose\u0000This paper aims to evaluate how strands of differing investments influence stability in the banking industry using data from 37 countries in Sub-Sahara Africa from 2000 to 2018.\u0000\u0000\u0000Design/methodology/approach\u0000Empirical analyses in the study were carried out using a two-step system Generalized Method of Moments estimation methodology.\u0000\u0000\u0000Findings\u0000Empirical results suggest that generally, growth in investments by governments, foreign investments and private domestic investments have a significant positive impact in stabilizing the banking industry. The empirical estimates further suggest that macroeconomic conditions such as macroeconomic uncertainty adversely affects the liquid reserve position of banks even during periods of appreciable growth in investments.\u0000\u0000\u0000Originality/value\u0000The authors present a different approach to the banking industry discourse. Instead of surmise the relationship with the direction of impact often emanating from the banking industry to other variables of interest or conditions, this study rather examines how investment dynamics among economies influence the stability of the banking industry overtime. In contrast to related studies, this study examines how strands of investment variables influence the stability of the banking industry. Specifically, this study is modeled to examine the extent to which variability in investment growth (using different investment variables) affect stability in the banking industry.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2021-11-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48879328","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-11-12DOI: 10.1108/jfrc-09-2021-0075
Bahriye Basaran-Brooks
Purpose Already suffering reputational damage from the global financial crisis, banks face a further loss of trust due to their poor money laundering (ML) compliance practices. As confidence-driven institutions, the loss of reputation stemming from inadequate compliance with regulations and policies labels banks as facilitators of crime and destroys public trust both in the bank itself, peer banks and the wider banking system. Considering the links between financial stability and adverse publicity about banks, this paper aims to critically examine the implications of ML-specific bank information on financial stability. Design/methodology/approach This paper adopts a content analysis and a theoretical discussion by critically evaluating the role of bank compliance information on stability with references to recent case studies. Findings This paper establishes that availability of information regarding a bank involved in or facilitating ML might pose a threat to financial stability if bank counterparties cut their ties with the bank in question and when bank stakeholders show a strong and sudden negative reaction to adverse publicity. Though recent ML scandals have not caused immediate instability, general loss of confidence associated with reputational risk have had a destabilising effect on affected banks’ capital and liquidity. Originality/value There has been surprisingly little discussion to date on the impact of publicly available bank information on financial stability and public confidence within the ML compliance framework. This paper approaches the issue of publicly available banking compliance information solely through the prism of public confidence and reputational risk and its impact on macro-stability by examining recent ML scandals.
{"title":"Money laundering and financial stability: does adverse publicity matter?","authors":"Bahriye Basaran-Brooks","doi":"10.1108/jfrc-09-2021-0075","DOIUrl":"https://doi.org/10.1108/jfrc-09-2021-0075","url":null,"abstract":"\u0000Purpose\u0000Already suffering reputational damage from the global financial crisis, banks face a further loss of trust due to their poor money laundering (ML) compliance practices. As confidence-driven institutions, the loss of reputation stemming from inadequate compliance with regulations and policies labels banks as facilitators of crime and destroys public trust both in the bank itself, peer banks and the wider banking system. Considering the links between financial stability and adverse publicity about banks, this paper aims to critically examine the implications of ML-specific bank information on financial stability.\u0000\u0000\u0000Design/methodology/approach\u0000This paper adopts a content analysis and a theoretical discussion by critically evaluating the role of bank compliance information on stability with references to recent case studies.\u0000\u0000\u0000Findings\u0000This paper establishes that availability of information regarding a bank involved in or facilitating ML might pose a threat to financial stability if bank counterparties cut their ties with the bank in question and when bank stakeholders show a strong and sudden negative reaction to adverse publicity. Though recent ML scandals have not caused immediate instability, general loss of confidence associated with reputational risk have had a destabilising effect on affected banks’ capital and liquidity.\u0000\u0000\u0000Originality/value\u0000There has been surprisingly little discussion to date on the impact of publicly available bank information on financial stability and public confidence within the ML compliance framework. This paper approaches the issue of publicly available banking compliance information solely through the prism of public confidence and reputational risk and its impact on macro-stability by examining recent ML scandals.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2021-11-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45866495","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-10-27DOI: 10.1108/jfrc-01-2021-0005
Namrata Sandhu
Purpose This study aims to enlist the red flag behaviors exhibited in financial services frauds. Design/methodology/approach A pluralistic mixed methodology was adopted in this study. Data collected via semi-structured interviews were coded, quantified and subjected to descriptive analysis to identify the most frequently exhibited red flag behaviors in financial services frauds. The relative risk of exhibition of the identified red flag behaviors was assessed by intuitively comparing the red flag behaviors identified in financial services frauds (experimental group, n = 24) with the red flag behaviors identified in a heterogeneous control sample of non-financial services frauds (control group, n = 28). Findings This study identifies six red flag behaviors likely to be more frequently exhibited in financial services frauds than in non-financial services frauds. Practical implications Results of this study can be used to develop a typical behavioral profile of a financial services fraud perpetrator. Active communication of this profile in fraud awareness training can help make fraud conspicuous in the financial services industry. Originality/value This study is unique because human behavior as a possible fraud indicator is an under-researched area. Further, this study examines first level of evidence and attempts an ex-post analysis of actual red flag behaviors exhibited in acknowledged fraud cases in which the perpetrator/perpetrators has/have been clearly identified.
{"title":"Red flag behaviors in financial services frauds: a mixed-methods study","authors":"Namrata Sandhu","doi":"10.1108/jfrc-01-2021-0005","DOIUrl":"https://doi.org/10.1108/jfrc-01-2021-0005","url":null,"abstract":"\u0000Purpose\u0000This study aims to enlist the red flag behaviors exhibited in financial services frauds.\u0000\u0000\u0000Design/methodology/approach\u0000A pluralistic mixed methodology was adopted in this study. Data collected via semi-structured interviews were coded, quantified and subjected to descriptive analysis to identify the most frequently exhibited red flag behaviors in financial services frauds. The relative risk of exhibition of the identified red flag behaviors was assessed by intuitively comparing the red flag behaviors identified in financial services frauds (experimental group, n = 24) with the red flag behaviors identified in a heterogeneous control sample of non-financial services frauds (control group, n = 28).\u0000\u0000\u0000Findings\u0000This study identifies six red flag behaviors likely to be more frequently exhibited in financial services frauds than in non-financial services frauds.\u0000\u0000\u0000Practical implications\u0000Results of this study can be used to develop a typical behavioral profile of a financial services fraud perpetrator. Active communication of this profile in fraud awareness training can help make fraud conspicuous in the financial services industry.\u0000\u0000\u0000Originality/value\u0000This study is unique because human behavior as a possible fraud indicator is an under-researched area. Further, this study examines first level of evidence and attempts an ex-post analysis of actual red flag behaviors exhibited in acknowledged fraud cases in which the perpetrator/perpetrators has/have been clearly identified.\u0000","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2021-10-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44943179","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-10-24DOI: 10.1108/jfrc-12-2020-0117
Emmanuel Carsamer, Anthony Abbam, Y. N. Queku
Purpose Capital, risk and liquidity are the vitality of the banking industry, which can improve the efficiency of banking and promote the efficiency of resource allocation. The purpose of this study is to examine how Basel III new liquidity ratios affect bank capital and risk adjustments and how banks respond to the new liquidity rules. Design/methodology/approach The authors adopted the system generalized method of moments (GMM) to examine how Basel III new liquidity ratios affect bank capital and risk adjustments and how banks respond to the new liquidity rules. Based on the call reports data from banks, GMM was used to test the hypotheses that new liquidity ratios affect bank capital and risk adjustments, as well as how banks respond to the regulation. Findings The results indicate banks targeted capital, risk and liquidity and simultaneously coordinate short-term adjustments in capital and risk. New liquidity measures enable banks to coordinate risk and liquidity decisions. Short-term adjustments in new liquidity rules inversely impact bank capital. Short-term adjustments in new liquidity rules inversely impact bank capital and capital adjustments adversely affect changes in the liquidity coverage ratio (LCR). Research limitations/implications The primary results revealed that Ghanaian banks simultaneously coordinate and target capital, risk exposure and liquidity level. Also, capital adjustments positively influence risk adjustments and vice versa while bidirectional negative coordination exists between bank capital and risk on one hand and liquidity on the other hand. Short-term adjustments in new liquidity rule inversely impact bank capital and capital adjustments adversely affect changes in the LCR. The findings partially confirm the theoretical predictions of Repullo (2005) regarding the negative links between capital, risk and liquidity but the authors have higher capital induces higher risk. Practical implications Banks should balance off their targeted risk and liquidity in order not to sacrifice capital accumulation for liquidity. Originality/value This research offers new contributions in the research of bank management of capital and liquidity toward banks during a financial crisis from a theoretical perspective and trust management from an applicative perspective.
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Pub Date : 2021-10-18DOI: 10.1108/JFRC-03-2021-0022
F. Teichmann
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