Banks responses to deregulation : revenues, costs and profits-evidence from Jordan

Abstract EN

The main interest of this paper is to outline the major responses of banks toward deregulation and financial reforms.

Thus, it examines the impact of the regulatory reform on banking efficiency performance.

This was achieved by examining the effects of deregulation and banking reforms on revenues, costs and profits efficiencies given input and output prices.

The examination was extended to investigate whether the regulatory reform creates structural changes in the banks’ investing and financing behavior.

While, the results show no substantial increase in banks profits, the overall indication specifies that most of the measure controls adopted by the CBJ improved the soundness of the banking sector in Jordan.

The analysis reveals an increase in costs which attributed to change in the market conditions, in addition to the increase in the structural costs caused by the deregulation and the reform regimes.

The low profit levels is attributed to increased competition that forced banks to follow a restricted behavioral policy of not widening their spreads, and focus on achieving stable interest rate margins instead.

The results revealed that, because of increased competition, banks increased their relative dependence on the interbank funding, in addition to increase their access toward the deposit market.

The results indicated also more reliance on using capital reserve.