Bank Capital Inflows, Institutional Development and Risk: Evidence from Publicly - Traded Banks in Asia (original) (raw)
Related papers
Risk Hazard of Banking in Emerging Countries
WSEAS TRANSACTIONS ON SYSTEMS
The development of Islamic banking has been examined. Many researchers have been dedicated to researching how this growth generates microeconomic consequences on financial institution efficiency. This paper embodies a comprehensive analysis of Basel II standard implementation impacts gap in hazards between Islamic and conventional banks in Asia countries (Indonesia, Malaysia, Singapore, Thailand, and Philippines, Brunei Darussalam). Basel II requirements make contributions to expand the distance in hazard between conventional banks and Islamic Banks at the rate of the latter. Four arguments may be supplied to provide an explanation for why Basel II requirements can contribute to making Islamic banks exceptionally riskier than conventional banks. the connection between Islamic banking and hazard is conditional on the regulatory framework. A mapping descriptive examination analyzing the international locations of every form of bank and the 12 months of implementation of Basel II regul...
International Review of Financial Analysis, 2018
Does institutional quality enhance or weaken the effect of bank regulations and supervision on bank stability? We use a sample of around 1,050 commercial banks from 69 emerging and developing economies over the 2004-2013 period and show that the answer to this question depends on the type of institutional quality and on the type of bank regulation. Political stability strengthens the positive effect of capital regulation and activities restrictions on bank stability as measured by the z-score. Control of corruption also enhances the positive effect of activities restrictions on stability. On the other hand, the positive effect of capital regulation and private monitoring on stability subdues when good quality institutions that induce loan repayment, such as strong creditor rights and the rule of law, are present. Finally, we do not find strong evidence that the negative effect of supervisory power on bank stability is conditioned by institutional quality. In further analysis, we disaggregate the z-score measure and find that institutional quality conditions the effect of bank regulations on stability more by affecting profit stability and profitability rather than by influencing capitalisation. These findings could be useful for bank regulators in emerging and developing economies in the light of the implementation of the Basel III accord.
Financial liberalization and bank risk-taking: International evidence
Journal of Financial Stability, 2014
This paper analyzes the channels through which financial liberalization affects bank risktaking in an international sample of 4,333 banks in 83 countries. Our results indicate that financial liberalization increases bank risk-taking in both developed and developing countries but through different channels. Financial liberalization promotes stronger bank competition that increases risk-taking incentives in developed countries, whereas in developing countries it increases bank risk by expanding opportunities to take risk. Capital requirements help reduce the negative impact of financial liberalization on financial stability in both developed and developing countries. However, official supervision and financial transparency are only effective in developing countries.
The Effect of Reliance on International Funding on Banking Fragility: Evidence from East Asia
The East Asian crisis highlights the importance of liquidity for smooth functioning of the banking system. It also shows the vulnerabilities that arise as a result of high dependence on international liquidity. This article empirically analyses the influx of liquidity before the crisis and illiquidity during the crisis in finding out whether banks in East Asia held ‘too little’ or ‘too much’ liquidity before and during a crisis and how their vulnerabilities to failure changed as a result of that. Instrumental Variable estimation is used to dissociate the effect of international illiquidity on banks’ liquidity risk during a crisis year. The study finds that the effect of liquidity on the probability of bank failure varies before and during a crisis. The findings also highlight the vulnerabilities of banks to failure as a result of international illiquidity and high reliance on external funding. These findings bring forward the case for stronger regulation of banks’ liquidity, which can be brought forward by better liquidity management.
Institutional Development, Capital Ratios, and Bank Lending: Evidence from a Global Context
SSRN Electronic Journal, 2019
This paper examines the effect of capital ratios and institutional variables on bank lending in a global context. For this purpose, a Two-stage least square model is employed on a sample of commercial banks operating in 51 countries around the world from 2004 to 2015. Findings show that banks detaining higher capital ratios and operating in more developed institutional environments exhibit higher loan growth. Also, higher levels of institutional development alleviate pressure on lending during economic downturns. The results obtained in this paper contribute to the bank lending and the law and finance literature and have important policy implications.
The impact of prudential regulation on bank capital and risk-taking: The case of MENA countries
The Spanish Review of Financial Economics, 2016
The main purpose of this paper is to assess the simultaneous impact of regulatory pressures on banks' capital and risk-taking behavior using a panel of 24 banks operating in the MENA region over the period 2004-2012. Using many panel data estimation techniques, we provide evidence that prudential regulations fail in reducing banks' risk-taking incentives and in increasing capital. We find also that bank profitability is positively associated with capitalization level suggesting that the underdevelopment of financial markets in MENA countries leads banks to rely more on internal resources to build their capital buffer. Our findings reveal also a strong negative relationship between the bank size and risk suggesting that large banks have more experience in managing their risk levels through diversification.
The Bank Concentration and Risk Exposure: Empirical Insights from Asian Countries
Nepal Journal of Multidisciplinary Research (NJMR), 2024
Background: The relationship between bank rivalry and stability is a subject of discussion in both theoretical and empirical research. The two competing theories, the (1) competitionstability and (2) competition-fragility theories, provide an alternate explanations, leading to controversy over the merger and acquisition policies implemented by Asian governments. This
2004
The primary purpose of this article is to investigate the relationship between bank capital and credit risk taking in emerging market economies. We also investigate the influence of several regulatory, institutional and legal features on the relationship between risk and capital. We apply a simultaneous equations framework following and . Our results corroborate the existing findings for US and other industrial economies, putting forward the impact of capital regulation on banks' behavior. We also show empirical evidence on the role of the regulatory, institutional and legal environment in driving bank capitalization and credit risk taking behavior in emerging market economies.
Basel II and Bank Credit Risk: Evidence from the Emerging Markets
SSRN Electronic Journal, 2000
Existing literature has focused attention on the impact of Basel I and similar capital requirement regulations on developed countries where such regulations were found to be effective in increasing capital ratios and reducing portfolio credit risk of commercial banks. In the present study, we study the impact of such capital requirement regulations on commercial banks in 11 developing countries around the world within a cross-section framework with the widely popular simultaneous equations model of . Surprisingly, we find that such regulations did not increase the capital ratios of banks in the developing countries. This implies that particular attention should be given to the business, environmental, legal, cultural realities of such countries while designing and implementing such policies for developing countries. However, we find evidence that such regulations did reduce portfolio risk of banks. We also find that capital ratios and portfolio risk are inversely related in contrast to the predictions of "buffer capital theory", "managerial risk aversion theory", and "bankruptcy cost avoidance theory." Our, evidence also shows that level of financial development and credit risk are inversely related implying that as the financial sector of a country develops it opens up avenues for alternative sources of finance, which results in reduced risk. Further evidence shows that liberalization is associated with bank risk.
Research in International Business and Finance, 2021
Using a sample of listed banks in the Asia-Pacific region from 2000 to 2016, this paper documents that higher bank market power reduces risk taking, but increases loan growth and performance from interest income and non-interest income. This highlights the bright side of bank market power in general. However, the positive effect of bank market power on financial stability is more pronounced for well-capitalized banks, although their performance tends to decline and loan growth is unaffected following an increase in market power. Hence, bank capitalization plays an important role in strengthening financial stability due to an increase in bank market power. Moreover, banks with higher market power located in countries with lower degree of financial freedom exhibit lower riskiness, higher loan growth, and better performance. Greater authorities' control in the financial sector is essential, not only to enhance financial stability, but also to boost financial intermediation and bank performance following an increase in bank market power. JEL Codes: G21, G28.