Purpose
This study examines the impact of banking regulations on productivity in BRICS and European banks, comparing regulatory frameworks to identify an optimal balance between financial stability and economic efficiency. Analysis includes the Basel Accord's three pillars – capital requirements, supervisory review and market discipline – along with deposit insurance and bank activity restrictions.

Design/methodology/approach
The study employs two panel datasets, totalling to 5,794 institutions across 37 nations from 2005 to 2023. The dynamic sequential Malmquist-Luenberger productivity index (DSMLPI) measures productivity changes, decomposing them into efficiency and technical progress. A two-step system generalized method of moments estimation models regulations as a key factor influencing total factor productivity (TFP) and its components.

Findings
Findings reveal that stringent capital requirements enhance TFP in both regions but hinder frontier expansion in BRICS. Regulatory supervision improves TFP in Europe by enhancing transparency and risk management but reduces TFP in BRICS due to political influence and inefficiencies. Market discipline fosters efficiency in Europe but fails in BRICS, enabling rent-seeking behaviour. Activity restrictions improve TFP in BRICS by stabilizing banking operations but limit efficiency in Europe by restricting diversification. Deposit insurance has no significant impact on BRICS productivity.

Originality/value
While existing research focuses on regulations' impact on market structure and stability, their role in productivity remains unexplored. This study utilizes the fifth edition of the World Bank's “Bank Regulation and Supervision” survey and employs the DSMLPI approach with a dynamic three-stage production model. This study helps policymakers balance financial stability with growth by focusing on productivity, which reflects long-term value creation and competitiveness.