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Bank failures in Russia: why do banks go bankrupt?

  • Malyutina Marina

    ()

  • Parilova Svetlana
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    More than half of all Russian banks have gone bankrupt since the beginning of commercial banking in Russia ten years ago. It is poor macroeconomic environment that is usually blamed for banking crises. However we think that excessive risk-taking by banks themselves contributed a lot to their troubles. We model the interaction between a bank and a regulator as a dynamic game in which the regulator lacks complete information on the bank's behavior. A weak regulatory framework creates incentives for banks to take on excessive risks, while high discount rates lead to little attention being paid to banks’ reputation. We intend to test our model using an extensive data set on more than 1500 banks during 1998–1999. Possible policy implications of the project include recommendations on improving prudential regulation and creating incentives for more prudent behavior by banks.

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    Paper provided by EERC Research Network, Russia and CIS in its series EERC Working Paper Series with number 00-073e.

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    Length: 44 pages
    Date of creation: 03 Apr 2003
    Date of revision:
    Handle: RePEc:eer:wpalle:00-073e
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    1. Bhattacharya, Sudipto & Boot, Arnoud W.A. & Thakor, Anjan V., 1995. "The economics of bank regulation," DEE - Working Papers. Business Economics. WB 7082, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    2. Asli Demirgüç-Kunt & Enrica Detragiache, 1997. "The Determinants of Banking Crises; Evidence From Developing and Developed Countries," IMF Working Papers 97/106, International Monetary Fund.
    3. Demirguc-Kunt, Asli & Detragiache, Enrica, 1997. "The determinants of banking crises : evidence from industrial and developing countries," Policy Research Working Paper Series 1828, The World Bank.
    4. George A. Akerlof & Paul M. Romer, 1993. "Looting: The Economic Underworld of Bankruptcy for Profit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 1-74.
    5. Berglöf, Erik & Roland, Gérard, 1995. "Bank Restructuring and Soft Budget Constraints in Financial Transition," CEPR Discussion Papers 1250, C.E.P.R. Discussion Papers.
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