Impact of the Basel IV framework on securitization and performance of commercial banks in South Africa
-
DOIhttp://dx.doi.org/10.21511/bbs.15(3).2020.09
-
Article InfoVolume 15 2020, Issue #3, pp. 95-105
- Cited by
- 1297 Views
-
1112 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Securitization has been used as a tool for bank funding, liquidity, risk management, and performance for over two decades. However, securitization activities were negatively affected by the recent financial crises, which led to stricter regulations of banks’ off-balance-sheet activities. This study examined the possible impacts of the Basel IV capital requirements on securitization activities and the performance of commercial banks in South Africa if implemented. The study used aggregated financial data of selected South African commercial banks to create a sample representative projection as if the selected banks had implemented the Basel IV capital requirements between 2002 and 2018. The simulated data were analyzed and compared to Basel III data using panel data analysis under certain assumptions, while other conditions held constant. The results revealed that the implementation of the Basel IV capital requirements will have a significant positive impact on securitization activities of commercial banks in South Africa. However, higher capital requirements of Basel IV may have no significant impact on performance of securitizing banks but it can protect banks from securitization exposure.
- Keywords
-
JEL Classification (Paper profile tab)G18, G21, G28
-
References46
-
Tables5
-
Figures0
-
- Table 1. Definition of model variables
- Table 2. Summary statistics of key variables
- Table 3. Frequency of securitization per bank per year
- Table 4. Results of capital requirements and securitization (random effects)
- Table 5. Results of securitization and bank performance (fixed effect)
-
- Bakoush, M., Abouarab, R., & Wolfe, S. (2019). Disentangling the impact of securitization on bank profitability. Journal of Research in International Business Finance, 47, 519-537.
- Balin, B. J. (2008). Basel I, Basel II, and emerging markets: A Nontechnical Analysis. SSRN.
- Bannier, C. E., & Hänsel, D. N. (2008). Determinants of European Banks' Engagement in Loan Securitization (Discussion Paper No. 10/2008). Deutsche Bundesbank.
- BCBS. (2009). Strengthening the resilience of the banking sector. Bank for International Settlements.
- BCBS. (2016a). Revisions to the securitization framework. Amended to include the alternative capital treatment for “simple, transparent and comparable” securitizations. Bank for International Settlements.
- BCBS. (2016b). Standardised Measurement Approach for operational risk. Bank for International Settlements.
- BCBS. (2017a). Basel III: Finalising post-crisis reforms. Bank for International Settlements.
- BCBS. (2017b). Finalising Basel III in brief. Bank for International Settlements.
- Beck, T., Jones, E., & Knaack, P. (2019). Basel III in Developing Countries – A difficult relationship. International Banker.
- Bloomberg Online Database. (2019). Bloomberg Professional Services.
- Carbó-Valverde, S., Marqués-Ibáñez, D., & Fernandez, F. R. (2011). Securitization, Bank Lending and Credit Quality: The Case of Spain (ECB Working Paper, No. 1329). European Central Bank (ECB), Frankfurt am Main, Germany.
- Cardone-Riportella, C., Samaniego-Medina, R., & Trujillo-Ponce, A. (2010). What drives bank securitisation? The Spanish experience. Journal of Banking & Finance, 34(11), 2639-2651.
- Castellani, D. (2018). Mortgage-backed Securitization and SME Lending During the Financial and Economic Crisis: Evidence from the Italian Cooperative Banking System. Economic Notes, 47(1), 187-222.
- Casu, B., Clare, A., Sarkisyan, A., & Thomas, S. (2013). Securitization and Bank Performance. Journal of Money, Credit and Banking, 45(8), 1617-1658.
- Chabanel, P. (2017). Capital calculations under the revised securitization framework. Moody Analytics.
- Chen, Z., Liu, F. H., Opong, K., & Zhou, M. (2017). Short-term safety or long-term failure? Empirical evidence of the impact of securitization on bank risk. Journal of International Money and Finance, 72, 48-74.
- Dionne, G., & Harchaoui, T. M. (2008). Banks' capital, securitization and credit risk: An empirical evidence for Canada. Journal of Insurance and Risk Management, 75(4), 459-485.
- Gabriel, G. (2016). The impact of the basel 3 capital requirements on the performance of european banks (Master’s Thesis).
- Ghosh, A. (2018). Implications of securitisation on bank performance: evidence from US commercial banks. International Journal of Financial Innovation in Banking, 2(1), 1-28.
- Giordana, G. A., & Schumacher, I. (2017). An Empirical Study on the Impact of Basel III Standards on Banks’ Default Risk: The Case of Luxembourg. Journal of Risk and Financial Management, 10(2), 8.
- Goddard, J., Liu, H., Molyneux, P., & Wilson, J. O. (2013). Do bank profits converge? European Financial Management, 19(2), 345-365.
- Greenbaum, S. I., & Thakor, A. V. (1987). Bank funding modes: Securitization versus deposits. Journal of Banking and Finance, 11(3), 379-401.
- Haubrich, J. G., & Wachtel, P. (1993). Capital requirements and shifts in commercial bank portfolios. Federal Reserve Bank of Cleveland, Economic Review, 29(3), 02-15.
- Jablecki, J. (2009). The impact of Basel I capital requirements on bank behavior and the efficacy of monetary policy. International Journal of Economic Sciences and Applied Research, 2(1), 16-35.
- Jiangli, W., & Pritsker, M. (2008). The impacts of securitization on US bank holding companies (Working Paper). Federal Reserve Bank Chicago, Chicago.
- Kargi, H. S. (2011). Credit risk and the performance of Nigerian banks. Ahmadu Bello University, Zaria.
- Kasse-Kengne, S. (2017). Securitisation of mortgage loans, regulatory capital arbitrage and bank stability in South Africa: Econometric and theoretic analyses (Ph.D. Thesis). University of Cape Town.
- Keys, B. J., Mukherjee, T., Seru, A., & Vig, V. (2010). Did securitization lead to lax screening? Evidence from subprime loans. The Quarterly Journal of Economics, 125(1), 307-362.
- Krainer, J., & Laderman, E. (2014). Mortgage loan securitization and relative loan performance. Journal of Financial Services Research, 45(1), 39-66.
- Michalak, T. C., & Uhde, A. (2012). Credit risk securitization and bank soundness in Europe. The Quarterly Review of Economics and Finance, 52(3), 272-285.
- Mohan, T. P., & George, R. G. (2013). Basel 2.5 and Basel III: The Impact of the New Capital (and Liquidity) Rules on Securitization. Journal of Structured Finance, 18(4), 77-100.
- Moyo, Z., & Firer, C. (2008). Securitisation in South Africa: 2000-2007. South African Journal of Business Management, 39(1), 27-34.
- Munoz, S., & Soler, P. (2017). Basel III End Game. Regulations and Public Policies, 1-8.
- Nkopane, T. (2017). The relevance of the Basel III Accord within the South African banking system (Master’s Thesis). University of the Witwatersrand.
- Ombaka, C., & Jagongo, A. (2018). Mergers and acquisitions on financial performance among selected commercial banks, Kenya. International Academic Journal of Economics and Finance, 3(1), 1-23.
- Pavel, C. A., & Phillis, D. (1987). Why commercial banks sell loans: An empirical analysis. Economic Perspectives, 11(3), 1-14.
- Prinsloo, H. (2009). Real Estate Securitisation: Viable Method of Finance in South Africa? In 16th Annual European Real Estate Society Conference. ERES: Conference. Stockholm, Sweden, 2009.
- Robinson, R. I. (1941). The Capital-Deposit Ratio in Banking Supervision. Journal of Political Economy, 49(1), 41-57.
- Saayman, A., & Styger, P. (2003). Securitisation in South Africa: historic deficiencies and future outlook. South African Journal of Economic and Management Sciences, 6(4), 744-764.
- Sadien, E. (2017). The impact of the change from Basel II to Basel III on the profitability of the South African Banking Sector (Master’s Thesis). University of Capetown.
- Sarkisyan, A. (2011). Three essays on securitisation (Doctoral Thesis). City University London.
- The Banking Association South Africa. (2019). Traditional Securitisation transactions by the South African Banks.
- Uzun, H., & Webb, E. (2007). Securitization and risk: empirical evidence on US banks. The Journal of Risk Finance, 8(1), 11-23.
- Walter, J. R. (2019). US Bank Capital Regulation: History and Changes Since the Financial Crisis. Economic Quarterly, 105(1), 1-40.
- White, J. P. L. (2011). The role of securitisation and credit default swaps in the credit crisis: a South African perspective. North-West University.
- Yan, M., Hall, M. J. B., & Turner, P. (2012). A cost-benefit analysis of Basel III: Some evidence from the UK. International Review of Financial Analysis, 25, 73-82.