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Regulatory and Institutional Determinants of Credit Risk Taking and a Bank's Default in Emerging Market Economies

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  • Christophe J. Godlewski

    (Christophe J. Godlewski is at the Institut d'Etudes Politiques, 47 avenue de la Forêt Noire, 67082 Strasbourg Cedex, France. E-mail: christophe.godlewski@urs.u-strasbg.fr)

Abstract

Regulatory and institutional environment is not without effect on a bank's risk taking and therefore on a bank's default. In this article, we investigate regulatory and institutional determinants of credit risk taking and bank's default probability in emerging market economies. Using a two step logit model applied to a database of banks from emerging economies, we confirm the role of the institutional and regulatory environment as a source of excess credit risk, which increases a bank's default risk. In particular, the rule of law appears to be a crucial element of an efficient regulatory environment, which may reduce excessive risk taking incentives.

Suggested Citation

  • Christophe J. Godlewski, 2006. "Regulatory and Institutional Determinants of Credit Risk Taking and a Bank's Default in Emerging Market Economies," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 5(2), pages 183-206, August.
    • Handle: RePEc:sae:emffin:v:5:y:2006:i:2:p:183-206
    DOI: 10.1177/097265270600500204
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    Cited by:

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    3. Gila-Gourgoura, E. & Nikolaidou, E., 2017. "Credit Risk Determinants in the Vulnerable Economies of Europe: Evidence from the Spanish Banking System," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 10(1), pages 60-71, March.
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    6. Shen, Chung-Hua & Huang, Yu-Li & Hasan, Iftekhar, 2012. "Asymmetric benchmarking in bank credit rating," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(1), pages 171-193.
    7. Fazelina Sahul Hamid, 2013. "The Effect of Reliance on International Funding on Banking Fragility: Evidence from East Asia," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 7(1), pages 29-60, February.
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    More about this item

    Keywords

    JEL Classification: C35; JEL Classification: G21; JEL Classification: G28; Regulatory and institutional determinants; bank's default; credit risk; emerging market economies; two step logit model;
    All these keywords.

    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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