Regulatory capital requirement and bank stability in Sub-Saharan Africa


Yakubu I. N. , Bunyaminu A.

Journal of Sustainable Finance and Investment, 2021 (Refereed Journals of Other Institutions) identifier

  • Publication Type: Article / Article
  • Volume:
  • Publication Date: 2021
  • Doi Number: 10.1080/20430795.2021.1961558
  • Title of Journal : Journal of Sustainable Finance and Investment
  • Keywords: bank stability, GMM technique, Regulatory capital, Sub-Saharan Africa

Abstract

© 2021 Informa UK Limited, trading as Taylor & Francis Group.In the wake of the global financial crisis of 2007–2009, more stringent regulatory mechanisms such as increased capital adequacy ratios have gained prominence in an effort to create a stable banking sector. The relevance of capital regulation in ensuring the soundness and stability of the financial sector is overwhelmingly supported in the literature. Hitherto, little is documented on how capital requirement influences bank stability in Africa. This study, therefore, seeks to investigate the impact of regulatory capital requirement on bank stability in Sub-Saharan Africa over the period 2000-2017. Applying the generalized method of moments (GMM) technique, our results reveal a positive significant effect of capital requirement on bank stability. However, in the presence of institutional quality, capital adequacy has an inimical effect on stability. We conclude that stringent regulatory capital standards implementation is imperative for ensuring a sound and stable banking sector in Sub-Saharan Africa.x.