The Impact of Regulation and Supervision Compliance Costs to Financial Institutions in Tanzania.

Abstract

The role of banks and financial institutions in an economy is to provide means by which funds can be transferred from surplus units in the economy to deficit units. While playing this role, these institutions need to be regulated and supervised in order to have safe and sound banking systems. If not well implemented, however, these regulations entail substantial costs, which ultimately affect the banking system's efficiency. This paper examines whether or not supervision compliance costs are significant by applying regression analysis to the collected primary data. The results confirm the hypothesis that there is a negative relationship between bank earnings and compliance costs. This relationship is, however, found not to be strong. The computed coefficient of determination indicates that compliance costs represent about 3% only of the bank earnings variation in the country. This implies that a large proportion of the variation is explained by other variables.



African Journal of Finance and Management Vol.8(2) 2000: 55-63