This research incorporated several theoretical frameworks and technological innovations in regulatory compliance to bridge a critical gap in investigating the enabling role of the RegTech sandbox in expanding the effectiveness of monetary and prudential regulatory standards, which collectively influence banking performance indicators such as return on assets, return on equity and net interest margin (NIM).
To achieve this research goal, a vector autoregression methodology was conducted on three endogenous performance indicators of panel data from 23 different technological infrastructure countries during the period 2012–2021. By enabling the examination of how exogenous variables of monetary policy tools, prudential regulations influence one another while accounting for heterogeneity across countries.
The monetary tools such as required reserve, interest rate and money growth had a modest effect on banking performance. In contrast, prudential regulatory measures such as capital adequacy ratio, liquidity coverage ratio and leverage significantly impact stability and profitability. Besides, the RegTech sandbox dummy variable validated a positive but varying effect on the three performance indicators ΔROA (0.011 p < 0.05), ROE (0.120 p > 0.050 and NIM (0.052 p < 0.050) implying that the current scale and integration of RegTech solutions may not yet be sufficient to produce substantial profitability gains and introduce the need for regulatory updates for better future banks’ performance.
The study’s findings have important practical implications for policymakers to foster transparency and trust and enable banks to enforce reserve requirements, capital adequacy standards and liquidity ratios more effectively that directly impact their profitability and stability.
