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Bank market power, economic growth and financial stability: Evidence from Asian banks

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Author Info

  • Soedarmono, Wahyoe
  • Machrouh, Fouad
  • Tarazi, Amine

Abstract

This paper examines whether Asian banks are still prone to moral hazard in the aftermath of the 1997 Asian crisis. Using a sample of commercial banks from 12 Asian countries during the 2001–2007 period, our empirical findings highlight that greater market power in the banking market results in higher instability. Although banks are better capitalized in less competitive markets their default risk remains higher. A deeper investigation however shows that such behaviour is dependent on the economic environment. Higher economic growth contributes to neutralize greater risk taking and higher instability in less competitive markets.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 22 (2011)
Issue (Month): 6 ()
Pages: 460-470

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Handle: RePEc:eee:asieco:v:22:y:2011:i:6:p:460-470

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Web page: http://www.elsevier.com/locate/asieco

Related research

Keywords: Market power; Financial fragility; Economic growth; Asian banks;

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Cited by:
  1. Reddy, Kotapati Srinivasa & Nangia, Vinay Kumar & Agrawal, Rajat, 2013. "Indian economic-policy reforms, bank mergers, and lawful proposals: The ex-ante and ex-post ‘lookup’," Journal of Policy Modeling, Elsevier, vol. 35(4), pages 601-622.
  2. Fu, Xiaoqing (Maggie) & Lin, Yongjia (Rebecca) & Molyneux, Philip, 2014. "Bank competition and financial stability in Asia Pacific," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 64-77.
  3. Nguyen, My & Skully, Michael & Perera, Shrimal, 2012. "Bank market power and revenue diversification: Evidence from selected ASEAN countries," Journal of Asian Economics, Elsevier, vol. 23(6), pages 688-700.
  4. Wahyoe Soedarmono & Fouad Machrouh & Amine Tarazi, 2012. "Bank Competition, Crisis and Risk-Taking: Evidence from Emerging Markets in Asia," Working Papers hal-00918500, HAL.

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