A case study on the impact of regulatory pressures on governance, due to the global financial crisis, on public banks' performance in the EU Mediterranean Group

Abstract

With this study the author aims to provide an insight on the regulatory reforms on corporate governance, brought about, by its ineffectiveness in the global financial crisis. This study is important because the burden of regulations is detrimental to the performance of public banks in the EU Mediterranean Group. A search for the secondary data was carried out using the following databases; ProQuest, SSRN, Hydi, Research Gate and Google scholar. The author, in the literature, found that many parties argued that the burden of compliance is becoming very costly and this is negatively affecting the profitability and efficiency of banks. The research method adopted in this thesis involves comparing accounting ratios over a period of 10 years (5 years prior and during financial crisis (2006-2010) and 5-years post regulatory reforms on governance i.e. (2014-2018). Using panel data of ratios for profitability, liquidity and efficiency combined with the qualitative research, portrayed by the 3 interviews carried out with chief compliance officers and executives from public banks locally, the author compared the difference in performance between the above-mentioned periods. In the model, profitability has been measured by means of ROE, ROA and NPM. Liquidity has been measured by the LTD ratio, whilst efficiency ratio was taken as control for efficiency. The general trend in the EU Med. Group was that profitability and efficiency decreased drastically in the period taken as post regulatory reforms on governance. Liquidity, in turn increased, as higher capital buffers were imposed on banks. This was one of the main factors leading to a decrease in profitability. The findings of this thesis might be of interest to European authorities and European public banks. Regulatory reforms became excessive and are putting a big burden on the costs of banks, especially on smaller banks. A way forward should seek a balance between keeping a robust governance, whilst delivering a fair return to banks.