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Abstract

The main objective of this thesis is to test whether the financial regulation put in place in Portugal with the aim of bringing stability to the banking system has contributed to that aim.

This question is examined not by considering the incidence of failures before and after the regulations were put in place for, as will be set out, that approach would be inappropriate in the particular case of Portugal. Rather what is examined is whether the regulations have contributed to stability by reducing the volatility of profits or by increasing their level.

Financial regulatory reform is usually characterised as a move from macroeconomic, allocation and structural controls to prudential, protective and organisational controls. The history of these changes in Portugal is set out, and their effects on profitability then examined.

The following questions on the behaviour of profitability were addressed. What happened to profitability? How did it change as between before and after the reforms, and were the changes, if any, significant?

Next the effect of regulation on profitability in a model of profitability, which also allows for the effects of real and nominal macroeconomic stability, interest rates, management, market structure, and ownership, is examined.

Finally, the evolution of risk in the course of financial regulatory reform is examined. The main findings from the econometric tests are as follows. They show that profits, the RO.A. and RO.E. behave differently with financial regulation changes. Average profitability measured by profits increased but became more volatile, while average profitability measured by return on assets (R.O.A.) and return on equity (R.O.E.) fell. It is also found that regulation is statistically significant in explaining profits and R.O.A. behaviour but the influence of regulation on R.O.E. is statistically not significant. Output from these models is used to build a Regime Switching Model of Risk for the Banking System that allows risk to be determined simultaneously by regulation and by all the other banking performance determinants that are significant. According to these results, risk has decreased with full liberalisation of the banking market.

Publication Type:	Thesis (Doctoral)
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School Bayes Business School > Finance Doctoral Theses Bayes Business School > Bayes Business School Doctoral Theses

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