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Regulations, competition and bank risk-taking in transition countries

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Author Info
Agoraki, Maria-Eleni
Delis, Manthos D
Pasiouras, Fotios

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Abstract

This study investigates whether regulations have an independent effect on bank risk-taking or whether their effect is channeled through the market power possessed by banks. Given a well-established set of theoretical priors, the regulations considered are capital requirements, restrictions on bank activities and official supervisory power. We use data from the Central and Eastern European banking sectors over the period 1998-2005. The empirical results suggest that banks with market power tend to take on lower credit risk and have a lower probability of default. Capital requirements reduce risk in general, but for banks with market power this effect significantly weakens. Higher activity restrictions in combination with more market power reduce both credit risk and the risk of default, while official supervisory power has only a direct impact on bank risk.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16495.

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Date of creation: 01 Jun 2009
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Handle: RePEc:pra:mprapa:16495

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Related research
Keywords: Banking sector reform; regulations; competition; risk-taking; CEE banks;

Find related papers by JEL classification:
G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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References listed on IDEAS
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