Financial Regulations, Supervision Structure and Banking Performance in CESEE

Abstract

We examine the effects of supervision activities and structure on the risk-adjusted performance of banking institutions. For a data set of 450 banks from 20 economies of Central Eastern Southern Eastern Europe, we employ the moderation analysis framework and find that the supervision structure affects the supervision activities. Especially, this is relevant for bank units with a status “too-big-to-fail” on the national level. Seemingly, supervision scrutiny does not affect their performance, and it is associated with lower riskiness. On the contrary, such an effect is negligible for bank units with lower capitalization. The findings highlight the area of attention for regulators and policymakers and thus contribute to the designing of effective supervision mechanisms.