Bank competition, crisis and risk taking: Evidence from emerging markets in Asia
AbstractThis paper investigates the impact on financial stability of bank competition in emerging markets by taking into account crisis periods. Based on a broad set of commercial banks in Asia over the 1994–2009 period, the empirical results indicate that a higher degree of market power in the banking market is associated with higher capital ratios, higher income volatility and higher insolvency risk of banks. In general, although banks in less competitive markets hold more capital, the levels of capitalization are not high enough to offset the impact on default risk of higher risk taking. Nevertheless, during crisis periods, specifically the 1997 Asian crisis that has directly affected Asian banks, market power in banking has a stabilizing impact. A closer investigation however shows that such findings only hold for countries with a smaller size of the largest banks, suggesting that the impact of bank competition is conditional on the extent to which the banking industry may benefit from too-big-to-fail subsidies. Overall, this paper has policy implications for bank consolidation policies and the role of the lender of last resort.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.
Volume (Year): 23 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/intfin
Bank competition; Moral hazard; Financial crisis; Asia;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
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- Bing Xu & Adrian Van Rixtel & Michiel Van Leuvensteijn, 2013. "Measuring bank competition in China: a comparison of new versus conventional approaches applied to loan markets," BIS Working Papers 422, Bank for International Settlements.
- Francesco Marchionne & Alberto Zazzaro, 2013. "Rischio e concorrenza nel sistema bancario italiano durante la crisi finanziaria globale," Mo.Fi.R. Working Papers 86, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
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