Effects Of Bank Activity Restriction and Stringent Capital Regulation On Bank Stability In Sub-Saharan Africa

Abstract

This study investigates the effect of bank activity restrictions and stringent capital regulation on bank stability in commercial banks from Sub-Saharan Africa (SSA) countries. Secondary data for this study are collected from the Global Financial Development Database, Bank Regulation and Supervision Database, World Development Indicators Database, the Global Economy Database, and Worldwide Governance Indicators for the period 2003–2021. The dependent variable is bank stability, and the independent variables are stringent bank capital regulation and bank activity restrictions. The lag of the dependent variable, gross domestic product, inflation, bank concentration, and corruption are added as control variables. The purposive sampling method is employed to select the sample from the SSA population and the data analyzed using the dynamic model two-step General Method of Moment (GMM) estimation techniques. Bank activity restrictions and capital stringency are indexed based on the bank regulation and supervision survey of 2003- 2021. The empirical findings suggest strict capital regulation has negative effect and activity restriction has positive effect on bank stability. It was recommended that central banks and commercial bank management in the Sub-Sahara Africa economies work on enhancing the degree of strictness on capital regulations to attain a more stable banking sector so as to build shock resistant financial industry.