Banking Regulations and Supervising, and the Soundness of Banks in MENA Countries

Abstract

The consequences of the last financial crisis have increased the debates about the role of banking regulations and supervision in maintaining banks' soundness. This study investigates the impact of banking regulations, supervision on bank soundness, using a sample of 177 banks operating in 10 MENA countries. Four explanatory variables were used: capital regulatory requirements, regulatory restrictions on banks' activities, independence of supervisory authorities, and official supervisory power, while controlling for other macroeconomic and banking industry characteristics. The results show that bank soundness increases when the stringency of capital requirements increase. Greater restrictions on bank activities enhance bank soundness. Moreover, banks operating in countries with greater independence of supervisory authorities have more soundness, while official supervisory power does not have an impact on bank soundness. The outcome of the study provides empirical evidence for supervising authorities and banks' management about the role of banking regulations and supervising in maintaining banks' safety and soundness in MENA countries.

Keywords: Regulations, Supervising, Soundness, MENA banks.