scholarly journals Market Discipline and Bank Risk Taking: Evidence from the East Asian Banking Sector

2017 ◽  
Author(s):  
Fazelina Sahul Hamid ◽  
Norhanishah Mohd Yunus
Keyword(s):  
Risk Taking ◽  
Banking Sector ◽  
East Asian ◽  
Market Discipline ◽  
Bank Risk

Do consolidation and foreign ownership affect bank risk taking in an emerging economy? An empirical investigation

2015 ◽  
Vol 41 (9) ◽  
pp. 874-907 ◽  
Author(s):  
Mona A. ElBannan
Keyword(s):  
Credit Risk ◽  
Risk Taking ◽  
Banking Sector ◽  
Foreign Ownership ◽  
Emerging Countries ◽  
Bank Risk ◽  
Content Type ◽  
Insolvency Risk ◽  
Reform Plan ◽  
Reform Period

Purpose – The purpose of this paper is to examine the effect of bank consolidation and foreign ownership on bank risk taking in the Egyptian banking sector. Design/methodology/approach – Following prior studies (e.g. Yeyati and Micco, 2007; Barry et al., 2011), this study uses pooled Ordinary Least Squares regression models under two main analyses to test the relation between concentration and foreign ownership on one hand and bank risk-taking behavior on the other hand, where observations are pooled across banks and years for the 2000-2011 period. The reform plan was launched in 2004 and resulted in various restructuring activities in the banking system. Thus, to control for the effect of implementing the financial sector reform plan on bank insolvency and credit risk, this study includes a reform dummy variable (RFM) for the post-reform period in models testing the association between consolidation, foreign ownership and bank risk. Therefore, this categorical variable identifies whether bank risk is related to the reform activities that have been observed during the post-restructuring period, 2005-2011. Moreover, to accommodate the possibility that effects of bank concentration and foreign ownership on bank risk differ due to the implementation of the reform plan, the author create two interaction terms: one uses the product of the reform dummy variable and concentration measures, while the other uses the product of the reform dummy and foreign ownership variables to capture interactions. These interaction terms and the dummy variable provide ample room to capture the effect of bank concentration and foreign ownership on bank risks during the post-reform period. Findings – This study provides empirical evidence that bank concentration is associated with low insolvency risk and credit risk as measured by loan loss provisions (LLP) in the post-reform period. These results are consistent with the “concentration-stability” view, suggesting that concentration of the banking sector will enhance stability. Moreover, evidence shows that while a higher presence of foreign banks reduces bank credit risk in the post-reform period, it appears to increase insolvency risk. These results are robust to using alternative measures. These findings imply that regulators in emerging countries should support foreign investments in banks to transfer better managerial skills and systems. However, government-owned banks are found to be more prone to insolvency and credit risks; thus, their ownership should not be encouraged. Finally, policy makers should reinforce bank consolidation, be prudent in determining the capital adequacy ratio (CAR) and monitor intensively less profitable, well-capitalized and small-sized banks. Practical implications – Consolidation of the banking sector decreases insolvency risk and credit risk, as measured by LLP in the post-reform period. This study proposes that bank supervisors implement prudent polices in determining the bank CAR, and monitor intensively less profitable, well-capitalized and smaller banks, as they have incentives to increase risk. In addition, regulators should encourage foreign investment in the banking sector and facilitate their operations in Egypt. Social implications – Bank supervisors should intensely monitor banks with high-CARs that exceed mandatory requirements because they may be more likely to engage in more risk-taking activities. Originality/value – It provides empirical evidence from a country-specific, emerging market perspective, in which restructuring events affect the national economy. Egypt, similar to other emerging countries in Africa, pursues an institutionally based (bank-based) system of corporate governance, where banks are the primary sources of finance for firms. Therefore, restructuring banks and other financial institutions and supervising their operations ensure the soundness and stability of these institutions, which represent the nerve of emerging economies. Because emerging countries tend to share common characteristics and economic conditions, and the reform of their financial systems is significant for economic development, the Egyptian banking reform and restructuring program should be of interest to other emerging countries to capitalize on this experiment. While international studies on these relationships are mostly cross-country or focus on US banks, firm-specific studies are scant. Furthermore, the findings of this study should be of interest to Egyptian regulators, bank supervisors and policy makers studying the implications of bank reforms.

Bank risk‐taking and market discipline: Evidence from CoCo bonds in Korea

2020 ◽  
Vol 40 (6) ◽  
pp. 885-894 ◽  
Author(s):  
Younghwan Lee ◽  
Haerang Park
Keyword(s):  
Risk Taking ◽  
Market Discipline ◽  
Bank Risk

scholarly journals Economic Fluctuation, Local Government Bond Risk and Risk-Taking of City Commercial Banks

2021 ◽  
Vol 13 (17) ◽  
pp. 9871
Author(s):  
Changjun Zheng ◽  
Shiying Chen ◽  
Zhenhuan Dong
Keyword(s):  
Local Government ◽  
Risk Taking ◽  
Commercial Banks ◽  
Banking Sector ◽  
Government Debt ◽  
Bank Risk ◽  
Government Bond ◽  
Economic Fluctuation ◽  
Bond Risk ◽  
The Impact

Countercyclical fiscal regulation can mitigate economic risk, but this is bound to increase the scale of local government debt during an economic downturn, and then spread risk to the banking sector, forming potential financial instability factors. We extracted the three most important variables in this process: economic fluctuation, local debt risk and bank risk-taking to build an econometric model and found that: (1) both economic fluctuations and local government bond risks have a significant impact on bank risk-taking, which is negatively correlated with local economic growth, while the increase of local government bond risks tends to increase bank risk-taking in the long run; (2) the impact of local government debt risk significantly increases the loans of city commercial banks flowing into the construction industry. Therefore, the impact of local government bond risk on city commercial banks is concentrated in the impact on their construction loans. This study has an important reference value for timely and moderate countercyclical regulation, preventing local debt risk from spreading to banks, constructing a sustainable local government−bank ecology, and promoting sustainable economic development.

scholarly journals When do regulations matter for bank risk-taking? An analysis of the interaction between external regulation and board characteristics

2018 ◽  
Vol 18 (3) ◽  
pp. 440-461 ◽  
Author(s):  
Glauco De Vita ◽  
Yun Luo
Keyword(s):  
Risk Taking ◽  
Gender Diversity ◽  
Capital Requirements ◽  
Market Discipline ◽  
Bank Risk ◽  
Board Independence ◽  
Board Governance ◽  
Board Size ◽  
Content Type ◽  
External Regulation

PurposeAccording to previous international studies, the impact of external regulation on bank risk is ambiguous. The purpose of this paper is to ask the question, “When do regulations matter for bank risk-taking?” by reporting the first empirical investigation of how the relation between bank regulations (capital requirements, official supervisory power and market discipline) and bank risk-taking is moderated by board monitoring characteristics.Design/methodology/approachUsing SYS-GMM, the analysis of the interaction between bank-level boards of directors’ attributes (board size, board independence and board gender diversity) and external regulation is based on a sample of 493 banks operating in 54 countries over 2001-2015, accounting for three measures of bank risk-taking.FindingsRegulations matter for bank risk-taking conditional on board characteristics: board size, board independence and board diversity. With the exception of capital requirements, the market discipline exerted by external private monitoring and greater supervisory power are unable to mitigate the propensity to greater risk-taking by banks resulting from larger board size, higher board independence and greater gender diversity of the board.Originality/valueThe bank risk empirical literature is still silent as to the interaction between board governance and regulation for the purpose of examining banks’ risk-taking. This paper fills this gap, thus making a significant contribution by extending our knowledge of whether and how board governance moderates the relationship between external regulation and bank risk-taking.

scholarly journals Capital Regulation and Risk-taking Behavior: Empirical Evidence for Islamic Banks

2022 ◽  
Vol 12 (1) ◽  
pp. 43-50
Author(s):  
Yomna Daoud ◽  
Aida Kammoun
Keyword(s):  
Empirical Evidence ◽  
Risk Taking ◽  
Banking Sector ◽  
Theoretical Background ◽  
Capital Adequacy ◽  
Bank Risk ◽  
Capital Regulation ◽  
Islamic Banks ◽  
Conventional Banks ◽  
The Relationship

This paper investigates whether regulatory pressures have an impact on the relationship between change in capital and bank risk-taking. On the basis of a well developed theoretical background, capital regulation constitutes the core of prudential regulation within the banking sector. Several researches have investigated this relationship between capital and risk in conventional banks, and this subject has gained in interest since the last financial crisis. This study is one of the few studies that have attempted to provide empirical evidence on this issue for Islamic banks. We use data of Islamic banking sectors over the period 2010–2014. The results reveal that Islamic banks tend to behave differently at each level of capital adequacy. In addition, we provide some evidence that change in capital is positively related to the change in risk for highly capitalized Islamic banks.

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