Assessing Basel Capital Regulations: Exploring the Risk and Efficiency Relationship in Emerging Economies

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

            The paper explores the relationship between Basel capital regulations, bank risk, and bank efficiency, focusing on commercial banks in Pakistan and India from 2009 to 2022. It evaluates the impact of Basel III capital requirements on risk and efficiency using quantitative analysis. The study utilizes system-GMM estimation technique to address endogeneity concerns. The findings contribute to understanding the effectiveness of Basel III regulations and offer valuable insights for policymakers and regulators in both countries.. Below I provide some comments to improve the quality of the paper.

1.     The System-GMM model allows the inclusion of lagged dependent variables in the model. Why did the author choose to fix the first-order lag without trying models with different lag lengths and then selecting the most appropriate model?

2.     Models (1) and (2) create a system of simultaneous equations when the dependent variable in model (1) becomes an explanatory variable in model (2) and vice versa. This could lead to biased results if the two models are estimated separately. How does the author address this issue?

3.     The System-GMM model is often very sensitive to the choice of instruments. Could the author provide a clearer explanation of how the instrumental variables for the models were selected? Additionally, the author should conduct robustness tests to ensure that the estimation results remain consistent and are not affected by different instrument choices.

4.     The author needs to report the results of the Arellano–Bond test for autocorrelation.

5.     In Tables 3 and 6, some variables have opposing effects on the dependent variable in the two countries, specifically ROA, INF, and GDP. Why do these variables have a positive effect in one country but a negative effect in the other? The author needs to discuss these unusual results in more detail.

Author Response

see attachment

Author Response File: Author Response.pdf

Reviewer 2 Report

Comments and Suggestions for Authors

- add main recommendation in the abstract

- add key words as the journal guidlines

- line 45 "non performing loans ..........to the end of this sentence need citiation

- lines 47 to 54 addressing NPL in Pakistan, where the data was old, we need to see some new figures,  also lines 55 to 64 about India in 2017, add new figures 

-the manuscript need robust analysis

- also other factors could influence NPLs such as facilities polices among both countries, and political issues,  Why is it not added?

- Do Pakistan and India follow the same procedures?

 

-

-performing loans

Comments on the Quality of English Language

English language could be improved 

Author Response

see attachment

Author Response File: Author Response.pdf