Distributional Income Effects of Banking Regulation in Europe
Lars Brausewetter, Melina Ludolph, Lena Tonzer
IWH Discussion Papers,
Nr. 24,
2023
Abstract
We study the impact of stricter and more harmonized banking regulation along the income distribution using household survey data for 25 EU countries. Exploiting country-level heterogeneity in the implementation of European Banking Union directives allows us to control for confounders and identify effects. Our results show that these regulatory reforms aimed at increasing financial system resilience affected households heterogeneously. More stringent regulation reduces income growth for low-income households due to employment exits. Yet it tends to increase growth rates at the top of the distribution both for employee and self-employed income.
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European Banking in Transformational Times: Regulation, Crises, and Challenges
Michael Koetter, Huyen Nguyen
IWH Studies,
Nr. 7,
2023
Abstract
This paper assesses the progress made towards the creation of the European Banking Union (EBU) and the evolution of the banking industry in the European Union since the financial crisis of 2007. We review major regulatory changes pertaining to the three pillars of the EBU and the effects of new legislation on both banks and the real economy. Whereas farreaching reforms pertaining to the EBU pillars of supervision and resolution regimes have been implemented, the absence of a European Deposit Scheme remains a crucial deficiency. We discuss how European banks coped with recent challenges, such as the Covid-19 pandemic, a high inflation environment, and digitalization needs, followed by an outlook on selected major challenges lying ahead of this incomplete EBU, notably the transition towards a green economy.
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Banking Reform, Risk-Taking, and Accounting Quality: Evidence from Post-Soviet Transition States
Yiwei Fang, Wassim Dbouk, Iftekhar Hasan, Lingxiang Li
Journal of International Accounting Research,
Nr. 1,
2022
Abstract
The drastic banking reform within Central and Eastern Europe following the collapse of the Soviet Union provides an ideal quasi-experimental design to examine the causal effects of institutional development on accounting quality (AQ). We find that banking reform spurs significant improvement in predictive power of earnings and reductions in earnings smoothing, earnings-inflating discretionary provisions, and avoidance of reporting losses. These effects hold under alternative model specifications and after considering concurrent institutional developments. In contrast, corporate reform shows no such effects, refuting the alternative explanation that unobserved factors affect both reform speed in general and the quality of financial reporting. We further identify four specific reformative actions that are integral to the drastic banking reform process where prudential regulation contributes the most to the observed AQ improvement. It supports the conjecture that banking reform improves AQ by reducing banks' risk-taking behaviors and, as a result, their motive behind accounting manipulation.
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