Potential Influence Of Basel ? Factors On Bank Risk Management In Palestine

The successive financial crises particularly the global financial crisis in 2008 directed significant towards international economic and financial institutions,specifically the International Monetary Fund(IMF),the Bank for International Settlements(BIS),and the Group of Twenty(G-20).This is due to the fact that these crises have had a negative impact on globalization and because the mentioned countries adopted and encouraged the acceleration of financial and economic globalization.Therefore,they studied the reasons for the banking crises,especially the largest ones,and then developed appropriate solutions on the Basel ? agreement.This agreement focuses on capital adequacy and new instruments to enhance the banking sector?s ability to face any default or any future financial crisis consistent with Pillar 3,Basel II and Basel ?.Even though these accords have several approaches to calculate a bank?s capital,it gives more flexibility for every jurisdiction to determine appropriate approaches according to their own economic conditions.This research investigates the ability of the Palestinian Bank Sector(PBS)to incorporate Basel ?.One of the main purposes of this research is to integrate a novel framework to apply Basel ? on the PBS.Moreover,this research measures the value of the Basel concepts and approaches on the Palestinian economy.Thus,this research studies the real PBS state by investigating consolidated balance sheets of banks operating in Palestine from the years of 1996 to 2014.In addition,this research investigates the effect of bank capital,charter value,information systems,“internal/external” control systems and market discipline on bank risk.Therefore,this research tries to understand to what extent Basel ? increases the stability of the banking sector.Moreover,this research investigates the countercyclical buffer effect on the Palestinian economy.The size of the buffer after the stepwise growths during the application stage finally reaches 2.5%.Therefore,the research tries to answer the questions: will an increase in capital reserves affect the Palestinian economy? And,is the countercyclical buffer an appropriate indicator for Palestine?This research uses stepwise analysis.First,this research uses financial analysis based on the CAMELS Rating system to determine the PBS state,which is a supervisory rating system originally developed in the U.S.to classify a bank's overall condition.It is applied to every bank and credit union in the U.S.(approximately 8,000 institutions)and is also implemented outside the U.S.by various banking supervisory regulators.Then,this research uses an analytical description methodology to describe the new Basel accord for effective banking supervision and to determine the appropriate approach for the PBS.Next this research uses econometrics to predict probability at default(PD)by using the random effects logit model to estimate the probability of banking instability using the maximum likelihood method.The logit is a large-sample technique which has been commonly used in a number of similar studies.This research has taken 84 firms derived from a portfolio of a large Palestinian bank from 2011-2014.After developing the Basel ? formula through prediction by PD for the PBS this research uses the Autoregressive Distributed Lag Model(ADL)to investigates the effect of the countercyclical buffer on the Palestinian economy.Finally,this research uses Partial Least Square(PLS)to investigate the effect of banking capital,charter value,information systems,“internal/external” control systems and market discipline on banking risks by using the sample which includes 324 questionnaires from listed banks.The financial results show that the PBS has ability to apply the Basel ? agreement.And the statistical analysis shows that the Advanced Internal Rating Based Approach(A-IRB)is appropriate for Palestine?s banks.In addition,the logit analysis shows that the PD is 0.025%-16% and the cumulative weighted average is 10.706% for the PBS.Moreover,the ADL shows that the countercyclical buffer does not affect the Palestinian economy and it is good indicator,which is further support for Basel ?.However,the PLS results show that there is no relationship among bank capital and bank risk.The results also show that there is a positive relationship with charter value,the developed information systems,“internal/external” control systems but a negative relationship with market discipline.Our findings show that the PBS has the ability to apply Basel ? after predicted PD and a determined A-IRB approach.In addition,the countercyclical buffer is a good indicator for the Palestinian case and the increase in capital reserves cannot affect the economy.Following our findings,the charter value and market discipline are playing a very significant role regarding bank risk.Therefore,the results answer the research questions through support of Basel ? and suggest more attention on charter value and market discipline.Thus,this study is important not just for Palestine but also for those who have concern about bank risk and are trying to find a solution to future default.