Examining the association between Bank competition, regulatory capital, and Bank risk taking : An empirical study / Rana Amr Mohamed Ahmed Shahin ; Supervised Helmy Ibrahim Sallam , Heba AbouElsood

Thesis (M.Sc.) - Cairo University - Faculty of Commerce - Department of Accounting

In the wake of recent financial liberalization process, the Egyptian banking sector witnessed an improvement in market contestability. Additionally, the Central Bank of Egypt (CBE) started to enact the Basel capital accord in line with the best international practices to enhance the performance of Egyptian banks. These innovations have triggered diverse views concerning their implications on financial stability. This research complements empirically the prior literature with the objective to improve the financial stability and resilience of banks through examining the association between bank competition, regulatory capital, and bank risk taking. Using a sample comprises 27 Egyptian banks covering the period from 2011 till 2017, the results suggest that the Egyptian banking sector is characterized by monopolistic competition. The findings provide empirical evidence that a higher level of competition increases bank risk taking and contributes to financial fragility in the absence of banking capital regulations. Further, larger regulatory capital adequacy has the potential to discipline the risk-shifting incentives of banks and protect them against default. Finally, the tradeoff between bank competition and financial stability does not indicate that bank regulators shall give up trying to improve it. In fact, the findings prove that it is possible to maintain a larger regulatory capital ratio to ensure effective competition and financial stability at the same time

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