Event

Inclusive Banking, Financial Regulation and Bank Performance: Cross-Country Evidence

Date and time
Thursday, 28 March 2019
15.00 - 16.00

Location
Room E610

The Enterprise Evaluation and Applied Economics Cluster has organised a seminar series for Spring 2019, showcasing the research being undertaken by the Cluster, as part of the Centre for Business Improvement. The series brings together prominent economists to present their latest work in the field, and would be of interest to staff and students across the University.

We're delighted to welcome Professor Sushanta Mallick, Professor of International Finance at Queen Mary University of London, as our third presenter.

Topic

Inclusive banking, financial regulation and bank performance: cross-country evidence

Abstract

Using data for 1,740 banks from 86 countries over the period 2004-2015, this paper contributes to the ongoing policy debate on whether greater financial inclusion can help improve bank performance, even in the presence of financial regulation. We, first, document a strong positive association between financial inclusion and bank efficiency, and then show that this association is stronger in countries with limited restrictions on banking activities, less barriers on foreign bank entry, and more capital regulation stringency. Exploring plausible channels, we find that greater financial inclusion helps banks reduce the volatility of their deposit-funding share, providing more stable long-term funds for banks while also mitigating the negative effects of their return volatility. Exploiting cross-country and temporal variation in the timing of inclusive financial agenda with hand-collected data on membership of an inclusive policy network of countries to actively promote inclusiveness, we also show, using a difference-in-differences estimator, that an enabling inclusive financial environment has positive impact on bank performance. Thus the significant benefits of inclusive banking have ramifications for enabling regulatory incentives to promote inclusive financial intermediation.

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