Risk management and corruption control: what impact on banking stability? A moderation analysis

Insolvency is a huge threat to banking institutions due to the lack of an appropriate technique to measure this risk. This work examines the effect of banking regulation using a set of panel data obtained in 74 banks from ten OECD countries during the period 2006-2016. We have considered macroeconomic and microeconomic parameters to estimate the insolvency risk at these institutions and evaluate the effect of each parameter on the growth of the firm. The results have shown the degree of importance of regulation and banking supervision in some of the sample countries on taking the risk of insolvency that is measured by the Z-score and subsequently the achievement of banking stability. On the one hand, bank capital affects stability positively. On the other hand, the cash risk measured by the increase in the 'LTA' ratio and non-performing loans has a negative effect. In addition, effective corruption control is found to significantly moderate CEO behaviour and, therefore, affect the banks stability.