The Impact of Ownership Concentration on the Relationship between Financial Risks and Financial Stability

This paper empirically investigates the impact of ownership concentration on the relationship between financial risks and financial stability across a sample of 110 conventional banks in the Middle East and North Africa (MENA) region, comprising 1,650 bank-year observations from 2007 to 2021 using various statistical methods. The findings reveal that there is no simultaneous link between credit risk and liquidity risk when applying 2SLS, suggesting these risks can be jointly managed to enhance banking stability. The analysis further indicates that state-owned banks are more stable, less likely to engage in excessive risk-taking, and more aligned with social welfare objectives. These banks effectively neutralize the adverse effects of financial risks on stability. Additionally, foreign banks demonstrate a stabilizing influence, attributed to their access to advanced technologies, global market integration, and enhanced risk diversification. Their operational transparency and information efficiency help mitigate the negative impacts of credit and liquidity risks. The results underscore the importance of ownership structure in promoting financial resilience. They support the principles of Basel III, particularly the emphasis on managing liquidity and credit risk in tandem. Ultimately, this paper highlights how effective governance through ownership concentration contributes to financial safety, economic growth, and employment generation in the MENA region.