This article examines the EU legal concept of reliance: the possibility for an obliged entity to satisfy selected elements of customer due diligence (CDD) by relying on measures already performed by another obliged entity or, under the current directive-based regime, another qualifying third party. Using doctrinal and comparative legal analysis, it maps the framework under Directive (EU) 2015/849 (AMLD), the new framework introduced by Regulation (EU) 2024/1624 (AMLR), and the surrounding international and supervisory standards developed by FATF, the Wolfsberg Group and the European Banking Authority (EBA). The article asks how reliance should be conceptualised under EU AML/CFT law, how it differs from outsourcing, and which interpretive issues should be clarified by the forthcoming Guidelines of the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA). The article argues that EU reliance constitutes a specific model of shared but non-transferred compliance performance: selected CDD elements may be performed by another entity, but ultimate responsibility remains with the relying obliged entity. This distinguishes reliance from outsourcing, where the service provider acts on behalf of and under the procedures and control of the obliged entity. The article contributes to the existing literature and policy debate by providing a structured legal conceptualisation of reliance under the AMLR and by identifying priority issues for the AMLA Guidelines on reliance on other obliged entities due by 10 July 2027: (i) whether and when re-identification of customers by the relying entity is required; (ii) permissibility and controls for chain-reliance; (iii) the scope for sharing information protected by professional secrecy, including banking secrecy, and data protection law; (iv) the treatment and updatability of politically exposed person (PEP) status, sanctions-screening outcomes and related data; and (v) access to CDD records after termination of the reliance arrangement. The analysis proposes a harmonised, risk-based and transparent approach, especially for intra-group reliance, cross-border cooperation and Banking-as-a-Service models, to reduce duplication while preserving supervisory accountability and CDD quality under the AMLR.
As heavily regulated entities, banks are legally obligated to disclose their current and projected risk exposures to clients, investors, and regulators via comprehensive regulatory reporting. With similar banking frameworks being adopted worldwide to support the globalization of trade and travel, we are witnessing a convergence in the fundamental characteristics of both retail and commercial banks across different jurisdictions. This convergence is evidenced through several key financial factors, an example being the ratio of Net Revenue to Total Assets, for which we note that, across various jurisdictions, this ratio hovers around an average of 2
Credit risk in banking is typically linked to macroeconomic conditions or portfolio diversification, while the role of sectoral credit allocation relative to business cycle conditions remains underexplored. This study examines how the cyclical alignment of bank lending with sectoral economic performance is associated with credit risk. A transparent measure of cyclical credit alignment, defined as the Pearson correlation between sectoral loan shares and sectoral revenue, is constructed. Using panel data for 27 Vietnamese commercial banks over the period 2009–2022, the analysis employs system GMM and panel threshold regression to assess both average and nonlinear relationships. The results indicate that higher alignment is associated with lower non-performing loan ratios on average. However, this relationship appears to be nonlinear. Credit risk is elevated at low levels of alignment, appears lowest under moderate alignment, and tends to increase again when portfolios become excessively synchronized with sectoral cycles. These findings suggest that the alignment–risk relationship is regime-dependent rather than monotonic. The estimated thresholds should be interpreted as indicative risk zones rather than fixed regulatory cutoffs, especially because the high-alignment regime is rare and disproportionately represented by state-owned commercial banks.
This article examines how the interaction between the European bank and insurance resolution frameworks shapes the resolution of financial conglomerates within the Banking Union. Although both regimes draw on common international standards and share certain conceptual foundations, their institutional architectures differ significantly. Bank resolution is centralised under the Single Resolution Board, whereas insurance resolution, introduced by the Insurance Recovery and Resolution Directive (IRRD), remains nationally administered. Using a structured scenario analysis of bank-led, insurance-led and holding-led conglomerates under alternative distress configurations, the article identifies the structural mechanisms that condition cross-sector coordination. It shows that coordination frictions arise not from the malfunctioning of sector-specific tools, but from four structural sources embedded in the two regimes: (i) the allocation of competences and the absence of a lead resolution authority, (ii) the sequencing of resolution actions and divergent intervention timelines, (iii) asymmetries in loss absorption capacity and funding arrangements, and (iv) differences in valuation frameworks. These frictions limit the design of coherent group-wide strategies and tend to produce parallel rather than integrated resolution outcomes. The findings suggest that improving cross-sector consistency does not exclusively depend on full institutional unification, but on the extent to which existing frameworks can align planning, sequencing and decision-making processes. On this basis, the article identifies three possible trajectories for strengthening cross-sector consistency: the introduction of a group-level coordination layer, the formalisation of joint planning and resolution colleges, and incremental convergence through practice-based cooperation.
This paper examines whether bank ownership shapes the international transmission of monetary policy through the bank lending channel. Specifically, it investigates whether foreign subsidiaries and domestic banks respond different to U.S. monetary policy shocks. By reference to a large bank-level dataset that covers 2,039 institutions across 116 countries over the period from 2001 to 2020, we combine detailed balance sheet information with an exogenous measure of U.S. monetary policy shocks. Our results indicate that in comparison with domestic banks, foreign-owned banks seem to adjust their lending more strongly in response to U.S. monetary policy shocks. However, this effect is highly heterogeneous across banks and is therefore not statistically significant. These findings hold regardless of whether lending persistence is explicitly modeled. Overall, the evidence downplays the role of internal capital markets as drivers of the international credit channel of monetary policy over yearly horizons. More broadly, the results suggest that foreign ownership appears to play a secondary role in this context relative to broader balance sheet characteristics and exposure to global financial conditions.
The aim of this study was to determine the influence of environmental, social, and governance (ESG) factors on the financial performance of European banks. The research employed comparative analysis, statistical modelling, and correlation analysis based on data from 2018 to 2024, obtained from publicly available financial reports of leading European banks. The findings revealed that banks with higher sustainability metrics, reflected in environmental initiatives, social programmes, and effective corporate governance, demonstrated stronger dynamics in return on assets and return on equity. Social initiatives aimed at enhancing employee well-being and improving customer engagement contributed to reduced operational risks and increased client trust. Furthermore, effective corporate governance practices, including transparency in reporting and the implementation of anti-corruption measures, positively influenced the resilience of the banking sector amid market fluctuations. Moreover, banks with top ESG scores reduced their average stock price volatility from 2.5
The Mauritian banking sector is central to economic stability and growth, supported by a robust legal and regulatory framework. However, it faces vulnerabilities including financial crime, money laundering, and weak risk management. This study examines the enshrinement of corporate governance principles within the Mauritian banking legal framework, evaluates the risks associated with poor application, and proposes reforms to strengthen governance outcomes. Findings indicate that the mere presence of corporate governance principles is insufficient; their effective application is essential. Legislative enhancements, expanded Bank of Mauritius Guidelines, stronger audit mechanisms, targeted board training, and increased transparency are recommended to ensure meaningful compliance. Proper implementation of these measures can transform the banking sector, fostering resilience, accountability, and ethical practices.
The stability of a bank’s funding base is critical for ensuring long-term financial resilience, particularly given the inherent risks of maturity transformation in banking. While regulatory frameworks have traditionally focused on the asset side risks, liability-side vulnerabilities, especially funding stability, remain relatively underexplored. This paper focuses on the risk arising from liabilities side of balance sheet by constructing multiple measures of geographic diversification based on branch dispersion and deposit distribution. It shows that greater geographic diversification of Indian bank’s deposit base helps in improving their funding stability. Banks with greater diversified deposits experience less volatility in deposit growth over time. Specifically, expanding a bank’s deposit base across various states and population groups can improve funding stability by reducing the volatility of deposit inflows and outflows. We further show that the geographical diversification of deposit base of banks reduces the share of term deposits leading to reduction in funding cost.
Commercial banks, given their pivotal position in emerging economies, face both opportunities and challenges as they strategically transition from traditional operating models to sustainability-focused approaches. This study investigates the effect of ESG investments of banks on their non-performing assets/ loans (NPA/ NPL) levels. Subsequently, we use Propensity Score Matching (PSM) to estimate the impact of ESG interventions through regulations on NPA reduction or increase by matching banks that have implemented the regulation Business Responsibility and Sustainability Reporting (BRSR) disclosure norms by the regulator Securities Exchange Board of India (SEBI) with those that have not. Our findings indicate that banks’ sustainability preferences and related ESG investments contribute to reducing NPA/NPL. Specifically, the environmental and governance aspects play a significant role in lowering NPL, whereas the social dimension appears to have the opposite effect, leading to a reverse mechanism. PSM analysis indicates that the ESG performance of banks adopting BRSR has a negative correlation with NPA, potentially leading to a reduction in NPL. The findings unveiled a nuanced landscape in banking sectors’ future policy decisions that must focus on the initiative of ESG investments, which impacts the substantial reduction in NPA.
This study evaluates how Basel III implementation affected bank asset quality, profitability, liquidity, and financial stability across emerging markets. Using a triple difference-in-differences framework applied to 3,222 bank-year observations from 13 countries over the period 2011 to 2019, the analysis exploits variation in adoption timing and bank characteristics to identify causal effects. The results indicate that Basel III improved asset quality and liquidity but reduced profitability, with the largest costs concentrated in the early implementation period. The largest costs fell on large banks early on, while state-owned banks recorded early gains that proved difficult to sustain. These patterns suggest that regulatory outcomes depend on bank type and institutional capacity rather than on uniform compliance. The study contributes to the Basel III literature by demonstrating the conditional and phase-dependent nature of regulatory effects and by highlighting the importance of implementation sequencing and institutional readiness in regulatory policy design.
Access to financial services is crucial for economic development, yet many households continue to face barriers that limit wealth accumulation, resilience, and quality of life. Limited access to formal financial services restricts participation in the formal economy. It may exacerbate poverty and inequality, particularly in Latin America and the Caribbean, where economic growth is often volatile. This study analyses financial inclusion across 19 Latin American and Caribbean countries using 2021 data from the Global Findex database. It examines account ownership, savings, borrowing, digital payments, barriers to financial access, and selected dimensions of financial health. The results show that higher education, higher income, urban residence, employment, internet access, mobile phone ownership, and post-COVID changes in payment behavior are associated with greater financial inclusion. Conversely, lower education, lower income, and rural residence are associated with a higher probability of financial exclusion. The analysis further distinguishes between voluntary and involuntary barriers to financial access. Wald test results indicate that the association between internet access and financial exclusion differs significantly between these two types of barriers. Internet access is associated with a lower probability of involuntary exclusion, particularly barriers related to distance and cost, but it does not reduce all forms of exclusion. The financial-health results show that higher income and savings at a formal financial institution are consistently associated with lower financial concern and greater financial control. Internet access is positively associated with financial control, but not consistently with other dimensions of financial health. These findings suggest that policies aimed at strengthening financial inclusion in the region should combine digital financial infrastructure with financial education, affordability measures, and targeted support for vulnerable groups.
This study investigates the impact of technology adoption by banks on credit and liquidity risk, with a particular focus on countries in the Middle East and North Africa (MENA). Using a sample of 155 banks observed over the 2010–2021 period, technology adoption is measured through an index including five key technologies: artificial intelligence, big data, blockchain, cloud computing, and the Internet of Things. Employing the system generalized method of moments estimator, our results indicate that technology adoption significantly reduces both credit and liquidity risk. Heterogeneity analyses further reveal that these risk-reducing effects are stronger in larger banks and are amplified in countries with deeper financial systems and more robust banking regulations, whereas state ownership, business model (Islamic vs. conventional), and Gulf Cooperation Council (GCC) versus non-GCC country classification do not meaningfully moderate the technology–risk relationship. These findings suggest that banking regulators and policymakers in the MENA region should prioritize initiatives that promote technology adoption to strengthen risk management practices.
This study examines the evolution and harmonization of bank regulatory and supervisory practices in South Asia from 2000 to 2024. Regulatory indices are constructed using Barth et al. 2013 approach based on data from the World Bank’s Bank Regulation and Supervision Surveys and a recent 2024 survey conducted by the authors with central banks in Bangladesh, Bhutan, India, the Maldives, Nepal, and Sri Lanka, reflecting post-COVID regulatory developments. The findings reveal a trend towards stricter capital standards, tighter licensing requirements, enhanced supervisory powers, robust deposit insurance (except Bhutan), and greater oversight of FinTech activities. However, disparities remain in emerging regulations such as cryptocurrency, data security, climate-sensitive crisis resolution, and risk management frameworks. India has advanced in aligning with international best practices, while Nepal has adapted to its national context with some convergence with India. Bhutan and Maldives have small, developing banking sectors, while Bangladesh and Sri Lanka follow global standards through context-specific regulations. The study suggests that effective regulatory harmonization should involve shaping agile and resilient regulatory environments tailored to national contexts while remaining globally coherent. Continued peer learning and knowledge exchange among regulators are vital to developing a more crisis-resilient, integrated, and future-ready financial system in South Asia.
This study delves into the concept of digital transformation within the financial services industry and its effects on traditional banking and customer experiences. Through a comprehensive analysis of existing literature, the research identifies key trends, challenges, and implications of digital transformation for financial institutions and consumers. Furthermore, the study investigates the potential implications of Open Banking and Banking as a Service (BaaS) models on competition and innovation in the financial services market. The current literature review shows that traditional banks should accelerate their adoption of digital technologies to face the growing competition from digital disruptors in the financial services market. Besides, the present study indicates that although open banking and BaaS pose risks to traditional banks and their direct customer relationships, these models can also provide banks with opportunities to monetize their infrastructure, create new revenue streams, and expand their market presence through partnerships with fintech firms and big-tech companies. A strategic partnership with fintech firms and big-tech companies can help banks retain clients who might otherwise switch their banking activities to digital competitors.
By integrating ethical considerations into their strategies, Islamic banks have attracted growing academic and policy interest. While existing studies often compare Islamic and conventional banks, this paper focuses exclusively on Islamic institutions operating under contrasting institutional and regulatory environments. We examine Islamic banks in Iran, Indonesia, and the United Kingdom—three distinct governance archetypes—over the period 2017–2021. Using Data Envelopment Analysis (DEA), slack, and structural equation modeling (SEM), we assess relative efficiency patterns, peer benchmarks, and the composition of inefficiencies. Our results reveal systematic differences in efficiency profiles and input–output structures across institutional settings. While these findings are consistent with expectations derived from institutional theory and Sharia governance frameworks, they should be interpreted as comparative and descriptive rather than causal. The analysis highlights the role of cost management, output composition, and non-traditional income activities in shaping efficiency among Islamic banks.
In the judgment ABC Projektai (C-661/22), the Court of Justice held that the issuance of electronic money (e-money) requires transforming received funds into monetary assets distinct from those funds, and that e-money must be accepted as a means of payment by a person other than the issuer. These findings imply a need for evidential separation of e-money from the funds exchanged for it and for its acceptance by third parties. This interpretation raises doubts about the legality of certain e-money models that lack actual “circulation” of e-money units and instead rely on bank-money payment schemes, notably prepaid card systems—previously discussed by national supervisors and the European Commission. It also appears to challenge aspects of the earlier PAYSERA LT (C-389/17) judgment. At the same time, models based on separate record accounts without such “circulation,” settled through redemption mechanisms (as in PAYSERA LT), remain functionally justified. These uncertainties are not addressed in the current draft of the Payment Services Regulation and should be clarified by the European Banking Authority. The statutory definition of e-money should then be amended to prevent interpretative ambiguity regarding models built upon existing bank-money infrastructures.
This study investigates the factors contributing to insolvency risk in Vietnamese commercial banks across different macroeconomic environments, emphasizing regulatory and stability implications for emerging markets. A composite Z-score, created using Principal Component Analysis (PCA), captures the multidimensional nature of risk. Dynamic panel estimations, particularly the System GMM approach, account for unobserved heterogeneity and potential endogeneity in bank risk. Key findings indicate that bank-specific factors significantly influence insolvency risk. Profitability (return on equity, ROE: −2.881) and capitalization (equity to total assets, ETA: −0.334) strengthen resilience, while lending activity (loan-to-deposit ratio, LDR: −0.171) and bank size (SIZE: −0.793) also contribute to stability. In contrast, inefficiency (cost-to-income ratio, CIR: +0.024) and inflation (INF: +0.040) increase vulnerability, highlighting the impact of internal weaknesses combined with adverse macroeconomic conditions. The regime-dependent estimations reveal that macroeconomic environments affect the relationship between bank fundamentals and insolvency risk. During stable periods (− 0.428) and in response to the COVID-19 shock (− 0.230), the sensitivity of insolvency risk to balance-sheet factors diminishes, suggesting that policy measures can temporarily alleviate risk. These findings have several regulatory and managerial implications, including the need for balanced capital regulation, sustainable profit targets, and prudent lending practices. Moreover, scenario-based macroprudential planning tailored to varying macroeconomic conditions is vital for ensuring financial stability in emerging markets. This study contributes to the literature by introducing a PCA-based composite Z-score as a comprehensive measure of insolvency risk, while also highlighting the influence of regime-specific macroeconomic conditions on risk transmission mechanisms. This enhances the scholarly understanding of financial stability in emerging economies.
This paper examines how rising geopolitical risk influences bank-level financial stability and identifies the structural conditions that shape resilience. Using a global panel of more than 58,000 bank-year observations across 137 countries from 2000 to 2021, we conduct a multidimensional assessment of stability covering solvency, credit, liquidity, and asset risk. The results show that higher geopolitical risk erodes solvency, increases credit risk, weakens liquidity buffers, and amplifies asset-return volatility. These effects are most pronounced in bank-based systems, where balance-sheet intermediation heightens vulnerability, whereas market-based systems display greater resilience. Our framework highlights a “triangle” of modulators: financial-system architecture, institutional quality, and regional financial integration. Strong institutional quality mitigates these risks, while regional financial-integration arrangements, especially when coupled with robust governance, substantially dampen the transmission of geopolitical shocks. Robustness checks using panel quantile regressions, alternative stability measures, and global uncertainty indices confirm these findings. By linking geopolitical risk to bank fragility through financial system architecture, institutional quality, and regional integration, the study clarifies channels of financial contagion and provides policy-relevant insights for strengthening resilience in an era of growing geopolitical fragmentation.
Non-performing assets (NPAs) pose a persistent threat to banking stability, credit intermediation, and financial resilience, particularly in emerging economies with evolving regulatory and institutional frameworks. While existing studies on Nepal largely document trends in non-performing loans (NPLs) and their effects on bank profitability, limited attention has been paid to the adequacy of the legal and regulatory architecture governing NPA resolution in light of international regulatory standards. This article critically examines the legal framework for the management and recovery of NPAs in Nepalese commercial banks using a doctrinal research methodology. The study analyses statutory provisions, regulatory directives of Nepal Rastra Bank, and recent NPL data, and situates Nepal’s legal regime within broader international regulatory principles articulated by the Basel Committee on Banking Supervision, the International Monetary Fund, and international best practices on distressed asset resolution. The findings indicate that although Nepal has adopted multiple legal mechanisms for NPA classification and recovery, enforcement remains fragmented, procedurally slow, and institutionally constrained. The absence of a centralized asset resolution mechanism and limited coordination among regulatory and judicial institutions further weaken effectiveness. The article contributes to the literature on banking regulation in emerging markets by highlighting enforcement gaps and proposing legally grounded reforms, including strengthened insolvency processes, improved regulatory coordination, and the establishment of a well-governed asset management company to enhance financial stability.
Over a decade after the establishment of the Banking Union, European banking supervision continues to operate within a fragmented prudential framework. Despite the Single Rulebook aiming for a level playing field, national options, discretions, and heterogeneous transpositions of directives persist. This fragmentation poses pressing challenges for the ECB as single supervisor of significant institutions under the SSM, particularly given its obligation under Art. 4(3) and 9(1) SSM Regulation to apply national law implementing Union law. Drawing on recent case law of the European Court of Justice this article analyses the expanding scope of national law the ECB is required to apply and the resulting operational and constitutional concerns. Against this background, it is examined whether Member States are obliged under the principle of sincere cooperation in Art. 4(3) TEU to show restraint when exercising legislative discretion further fragmenting the supervisory framework. It argues that the principle of sincere cooperation does not impose a hard prohibition on national differentiation, but (only) entails a duty of consideration where additional national rules are not justified by genuine domestic specificities and risk undermining effective and uniform supervision. Ultimately, however, responsibility for addressing systemic fragmentation rests primarily with the EU legislator.
