The Impact of the Tightening of Banking Regulatory Requirements on the Profitability and Concentration of the Banking Sector in the European Union

Civic Review· VOL 17. Special Issue, 2021, 173–186., DOI: 10.24307/psz.2021.0013

Dr. Zsófia Kenesey PhD, Economist, University of Sopron (This email address is being protected from spambots. You need JavaScript enabled to view it.); Dr. Róbert Tóth PhD, Senior Lecturer, Institute of Economics and Management, Faculty of Law of the Károli Gáspár University of the Reformed Church in Hungary (This email address is being protected from spambots. You need JavaScript enabled to view it.); Balázs Patyi, PhD student, Alexandre Lamfalussy Faculty of Economics, University of Sopron (This email address is being protected from spambots. You need JavaScript enabled to view it.); Dr. habil. László Pataki PhD, Associate Professor, Institute of Rural Development and Sustainable Economy, Hungarian University of Agricultural Sciences and Life Sciences (This email address is being protected from spambots. You need JavaScript enabled to view it.).

Summary

The stability of banking systems is a fundamental requirement for any national economy. Instability in the banking system and the consequent possible bank failures pose a threat to the functioning of the whole economy through a chain of infection. The crisis of 2008-2009 also highlighted the vulnerability of banking systems, creating the need for stricter capital and liquidity requirements for banks. Tightening the rules could also carry the risk of “over-regulation” in mega-markets, which might also worsen the profitability of financial institutions. The study examines the changes in the profitability of the banking system of the European Union and Hungary over the period between 2008 and 2019, as well as the impact of the tightening regulations on the ratio of non-performing loans.

Journal of Economic Literature (JEL) codes: G21, G28, H12
Keywords: banking regulation, profitability, non-performingloans