BANK CAPITAL INFLOWS, INSTITUTIONAL DEVELOPMENT AND RISK: EVIDENCE FROM PUBLICLY - TRADED BANKS IN ASIA
Abstract
This paper examines the relationship between bank capital inflows and financial stability. Using a sample of publicly-traded commercial banks in Asia over the 2002-2008 period, our empirical results show that higher banking inflows measured by the share of foreign liabilities in banking reduces systematic risk, but increases bank-specific risk and total risk. A deeper investigation further suggests that an increase in total risk and bank-specific risk is driven by strong institutional development. Specifically, higher foreign liabilities in banking exacerbate bank-specific risk and total risk in countries with greater economic freedom. Hence, the reinforcement of prudential regulations is necessary to overcome bank-specific risk and total risk, particularly when the countries move to a more liberal economic environment.
JEL Classification : G21, G28, G38
Keywords : Banking Globalization, Economic Freedom, Capital Market Measures of Risk
Downloads
References
Ariss, R.T., 2010. On the implications of market power in banking: Evidence from developing countries. Journal of Banking and Finance 34 (4), 765-775
Augier, L., Soedarmono, W., 2011. Intermédiation financière, croissance et effet de seuil. Revue Economique (forthcoming)
Bautista, C., Rous, P., Tarazi, A., 2009. The determinants of bank stock return»s co-movements in East Asia. Economics Bulletin 29(3), 1596-1601
Berger, A.N., DeYoung, R., Genay, H., Udell, G.F., 2001. Globalization of financial institutions: Evidence from cross-border banking performance. Federal Reserve Bank of Chicago, Working paper 1999-25
Bonin, J.P., Hasan,I.,Wachtel, P., 2005. Bank performance, efficiency and ownership in transition countries.Journal of Banking and Finance29, 31-53
Bris, A., Cantale, S., 2004. Bank capital requirement and managerial self-interest. Quarterly Review of Economics and Finance 44, 77-101.
Demirgüc-Kunt, A., Detregiache, E., 1998.The determinants of banking crises in developing and developed countries.IMF Staff Papers 45 (1).
Detregiache, E., Gupta, P., 2004. Foreign banks in emerging market crises: Evidence from Malaysia, IMF Working Paper 04/129
Dinger, V., 2009. Do foreign-owned banks affect banking system liquidity risk? Journal of Comparative Economics 37, 647-657
Furman, Jason., Joseph E. Stiglitz, Barry P. Bosworth, Steven Radelet. 1998. Economi crisis : evidence and insights from Asia, Brookings Papers on Economic Activity, Number 2, pages 1-135
Jeon, B.N., Olivero, M.P., Wu, J., 2011. Do foreign banks increase competition? Evidence from emerging Asian and Latin American banking markets. Journal of Banking and Finance 35, 856-875
Lensink, R.,Naaborg, L., 2007. Does foreign ownership foster bank performance.Applied Financial Economics17, 881-885
Levy-Yeyati, E., Micco, A., 2007. Concentration and foreign penetration in Latin American banking sectors: Impact on competition and risk. Journal of Banking and Finance 31, 1633- 1647
Sahminan, S., 2007.Effects of exchange rate depreciation on commercial bank failures in Indonesia.Journal of Financial Stability 3, 175-193
Soedarmono, W., Machrouh, F., Tarazi, A., 2011a. Bank market power, economic growth and financial stability: Evidence from Asian banks. Journal of Asian Economicsdoi: 10.1016/j.asieco.2011.08.003.
Soedarmono, W., Rous, P., Tarazi, A., 2011b. Bank capital and self-interest managers: Evidence from Indonesia. LAPE Working Paper, Université de Limoges
Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
