Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249552 
Year of Publication: 
2021
Series/Report no.: 
KBA Centre for Research on Financial Markets and Policy Working Paper Series No. 51
Publisher: 
Kenya Bankers Association (KBA), Nairobi
Abstract: 
This study investigates the trade-off between costs and benefits of bank regulation in Kenya. Using the Stochastic Frontier Analysis (SFA) and Annual data for the period 2003 - 2019, extracted from KBA Financial Database and KNBS macroeconomic data, the study models Industry-level and cluster level relationship between bank regulation and cost inefficiency of banks. The industry-level analysis indicates that stringent capital requirement has a positive and significant effect on the cost-efficiency of banks, while tighter liquidity requirements hurt cost efficiency. Further, the bank tier-level analysis established that the double-layered regulatory framework creates Cost inefficiencies amongst middle-tier banks. The key policy implication would be to consider reviewing, identifying, and amending the regulatory provisions that are creating inefficiencies among the listed middle-tier banks
Subjects: 
Bank Regulation
Cost-Benefit Analysis
Stochastic Frontier Analysis
JEL: 
G28
D61
C24
Document Type: 
Working Paper

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