Narrow Results

This study of two-step system generalized methods of moments (2GMM) of dynamic panel data addresses some critical insights of competition and revenue diversification of BRICS banks. The key findings are: (i) There is a significant positive association of market competition in risk-taking. (ii) Revenue diversification of banks supports the portfolio investment theory in risk management, which means that diversified sources of income have apparent influence in risk. (iii) Size has found a heterogeneous effect on risk-taking in the competitive market. (iv) Although, country-wise results of each country are in line with BRICS results in most of the cases, however, few exceptions are also observed in the examination of competition, revenue diversification and size in credit risk and stability of banks. Finally, the study evidences the nonlinear relationship of competition, revenue diversification, and risk.

This paper primarily examines the quadratic effect of banks’ size on capital regulation and risk-taking behavior by using simultaneous equation approach. This paper primarily examines the quadratic effect of banks’ size on capital regulation and risk-taking behavior by using simultaneous equation approach. To carry out the objective, this study has been built on the two-stage least squares (2SLS) method for a dynamic unstructured panel data of 85 banks from the Central European banks for the period 2012–2017. There is a positive and significant relation between regulatory capital and risk. Also, higher risk-taking behavior causes banks to sacrifice their stability. This study also finds that there is a negative correlation between bank size and capital, indicating that larger the bank size lower tendency to keep capital more. In similar way, there is also a negative association between bank size and risk taking, indicating that lower tendency of taking risk by large banks and vice-versa. Finally, this paper can be used as a medium of information for the stakeholders of banks and others financial institutions of the country. There is a dearth of literature which was built on the quadratic effect of bank size regarding recent financial regulation and risk.

The paper assesses the risk implications of rapid Islamic financing growth after the Global Financial crisis and whether financing — risk relations are more reflective of large Islamic banks. Employing a panel regression methodology and a sample of 72 Islamic banks from 14 countries over the period 2010–2019, our analysis indicates that Islamic financing growth does lead to credit risk deterioration up to two years ahead. We note further that Islamic banks are “too small to succeed” in that the risk effect of financing growth is more apparent for small Islamic banks. But, once an Islamic bank reaches a certain size threshold, it demonstrates ability to manage and mitigate credit risk arising from its financing activities. Based on these results, we conclude that Islamic banks need to be bigger.