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Economic Activity and Financial Institutional Risk: an empirical analysis for the Brazilian banking industry

Listed author(s):
  • Helder Ferreira de Mendonça
  • Delio Jose Cordeiro Galvao
  • Renato Falci Villela Loures

This paper analyzes the impact of the changes in capital requirements on bank’s risk and the trade-off between economic activity and the risk of financial institutions in the Brazilian economy. Hence, an analysis based on dynamic panel data taking into account 73 banks and a vector autoregression analysis for the period from 2001 to 2008 is made. The findings underscore that banks which adopt riskier strategies reach higher profitability. Moreover, the results suggest that the banking regulation is an important instrument for reaching the balance between the economic growth and the low exposition to the risk of banking firms in markets such as the Brazilian one.

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Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 243.

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Date of creation: May 2011
Handle: RePEc:bcb:wpaper:243
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  1. Gerard Caprio & Patrick Honohan, 2008. "Banking Crises," Center for Development Economics 2008-09, Department of Economics, Williams College.
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