Capital requirements and pressure on the technical efficiency of banks in the West African Economic and Monetary Union

This paper analyzes the role of capital requirements in the evolution of the level of technical efficiency and behavior of banks in the West African Economic and Monetary Union. We use a panel data set of 141 banks from 2000 to 2018. Using the stochastic frontier method, a fixed-effects regression model, and simultaneous equation estimators (2sls and 3sls), we show that capital requirements promote the technical efficiency of banks in the West African Economic and Monetary Union. The results highlight the beneficial role of regulatory pressure on the risk-taking and efficiency of banks. We conclude that the regulatory stress linked to capital requirements contributes to improving the level of efficiency of banks by discouraging and reducing risk-taking.<br><br><br><br><br>