The More the Merrier? Detecting Impacts of Bank Regulation after the Global Financial Crisis

Abstract

Governments worldwide reacted swiftly to the global financial crisis by a tougher regulation of the financial sector. Higher equity requirements and new standards how to interact with customers continue a trend of “re-regulation” which started in 1988. Like all regulatory measures, there are not only benefits, but also significant costs of government intervention. Unfortunately, many impacts of regulation are not easy to detect because they are hidden deeply in the processes of the financial firms. That is, we don’t have an exact number of regulatory costs from the profit and loss statement. This presentation focusses on the question on how to estimate cost impacts of regulation using panel data of more than 2,000 German banks from 1999 to 2014. While the absolute cost figure remains an open question, the results show a clear trend: Regulatory costs increase over time with peaks in 2001, 2008 and 2013. Most interesting, however, is the asymmetry of regulation: Whereas the cost effect was symmetric for all banks from 1999 to 2003, the last ten years were different. Larger institutions could neutralize the cost impact of increasing regulation. In contrast, the smallest 40% of German banks which are mainly made up from cooperative banks were facing significant cost increases. Bank regulation does therefore disadvantage smaller institutions and will trigger an unintended increase of concentration.

Biography

Guenter Lang joined the KLU as Adjunct Professor of Economics in September 2014. He obtained his PhD and his Habilitation in Economics from the University of Augsburg. Before joining KLU, he was Professor of Economics at the German University in Cairo, and visiting professor at the Technical University Ilmenau, the University of Klagenfurt (Austria), and the University of Augsburg. On top of that, Guenter Lang has a rich professional experience from teaching in business schools.
His main research area is the empirical work based on micro-data. For instance, Guenter Lang uses econometric methods to estimate the characteristics of firm technology, returns on R&D, the degree of management inefficiency, or the analysis of environmental problems like impacts of global warming. In complementary research, he is also interested in the analysis of economic policy. The ISI Social Science Citation Index counts more than 150 citations of his journal publications.
In teaching, Guenter Lang has a broad experience as lecturer on the B.Sc., M.Sc., MBA and Ph.D. level. His focus is on providing high-quality content in a well-structured and rhetorically attractive form. At the KLU, Guenter Lang is active in all degree programs. He is currently responsible for Microeconomics, Macroeconomics, Economics of Business Strategy, International Economics, Econometrics, and Global Business Management.

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