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PhD Defense: Jérémy Pepy

Published on September 27, 2021 Updated on September 27, 2021
Le 04 October 2021 De 09:00 à 11:30
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Salle Pascal - 313

Banking Regulation and Financial Development

Banking Regulation and Financial Development


Mickaël Goujon, Associate Professor, Université Clermont Auvergne
Benjamin Williams, Professor, Université Clermont Auvergne
Laëtitia Lepetit, Professor, Université de Limoges
Yamina Tadjeddine-Fourneyron, Professor, Université de Loraine
Vianney Dequiedt, Professor, Université Clermont Auvergne
Éric Lamarque, Professor, Université Paris 1 Panthéon Sorbonne
Florian Marsaud, Director, Risk Governance, BPCE


The 2007-2009 Financial Crisis has shed some light on the need to reconsider the design of the post-crisis banking regulation. Although financial reforms have been led in the objective to restore sustainable economic growth and financial stability, few literature highlight the role of financial development in satisfying these conditions. In this dissertation, we contribute to the debate by establishing the relationship between financial development and banking regulation. We specifically focus on the European Union (EU). The implementation of a unique regulatory framework and the heterogeneity of European financial systems render the EU a perfect case study.

In chapter 2, we empirically assess the relationship between capitalization, liquidity and the development of the banking sector at the macroeconomic level in order to raise the implications of a unique regulatory framework as defined within the European Banking Union (EBU). Our results show that capitalization and liquidity have a significant impact on the development of the banking sector. We argue that regulatory policy is an authentic instrument of financial stability by regulating the size of the banking system. We also show that the capital and liquidity impact on the banking sector development differs widely depending on the economic region the financial system belongs to which raises concerns for financial stability.

Chapter 2 illustrates the role of capitalization and liquidity on the banking sector development. Consequently, we build a positive theory of bank behavior under a regulatory framework à la Basel III in order to deeply investigate the impact of a regime both capital and liquidity driven on the production of credits in chapter 3. Our results evidence the common implications of the capital and liquidity instruments. We also underline the role of competition in modifying the bank loan supply and the banking liability structure. Our conclusion highlights the need to consider the implications of such a framework in order to avoid regulatory distortions which might dampen the objectives of economic growth and financial stability.

We set an empirical investigation in chapter 4 focusing on the relationship between capital, liquidity and lending at the microeconomic level in order to test the theory presented in chapter 3. First, we show that the implementation of a funding ratio such as the NSFR complements the instrument on capital as it strengthens the credit structure of the banking system. Our results suggest that bank loan supply differs depending on the quality of bank capital which raises a particular concern for the lead of monetary policy. Our results also show that the efficacy of the capital and liquidity instruments decreases as the banking sector develops.

As a conclusion, we show that banking regulation and financial development are not independent concepts. Therefore, our work highlights the need to consider the level of financial development in the design of banking regulation as the application of the regulation might impact financial development and financial stability in fine. Our results tend to show that the application of capital and liquidity instruments appears not sufficient to ensure financial stability particularly during the banking sector development process. Complementing banking regulation with a supervisory framework appears essential to ensure financial stability as the EU features Systemically Important Institutions (SIIs). Defining the conception of this architecture and its efficacy to ensure financial stability constitute an avenue for future research as economies differ widely at the global level.


Financial Development, Banking Regulation, Prudential Regime, Basel III, Credit Supply, Bank Behavior, Bank Capital Channel, Monetary Policy.