Is Banking Regulation Efficient in the West African Economic and Monetary Union?

Pascal H. DANNON Université d’Angers, GRANEM (Groupe de recherche angevin en économie et management). Contact : hodonou.dannon@univ-angers.fr.

Frédéric LOBEZ Université de Lille, Lille SKEMA Management Research Center (LSMRC). Contact : frederic.lobez@numericable.fr.

This paper investigates empirically the impact of bank regulation on the risk of default of WAEMU banks over the period 2000-2010. Our results suggest that banks which have relatively high capital ratios, those focusing on loans as well as large banks have a lower risk of default. However, WAEMU banks seem to finance riskier and more profitable assets to offset the extra cost of subordinated debt. Favorable macroeconomic conditions are factors reducing the risk of default while a high share of the financial sector in GDP increases this risk.