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International Financial competition and bank risk-taking in emerging economies

Author

Listed:
  • Arnaud Bourgain
  • Patrice Pieretti
  • Skerdilajda Zanaj

    () (CREA, University of Luxembourg)

Abstract

In this paper, we analyze the risk taking behavior of banks in emerging economies, in a context of international bank competition. In the spirit of Vives (2002 and 2006) who has developed the notion of "external market discipline", our paper introduces a new channel through which depositors can exercise pressure to control risk taking. They can reallocate their savings away from their home country to a more protective system of a developed economy. In such a frame- work, we show that there is no univoque relationship between the information disclosure of risk management and excessive risk taking. This relationship depends on the degree of financial openness of the emergent country, which ultimately defines how e¤ective the market discipline is. Furthermore, we analyze the risk taking choice of banks in emergent economies in presence of deposit insurance. We find no monotone relationship between the likeliness of excessive risk taking of banks in the emerging country and the level of deposit insurance.

Suggested Citation

  • Arnaud Bourgain & Patrice Pieretti & Skerdilajda Zanaj, 2009. "International Financial competition and bank risk-taking in emerging economies," CREA Discussion Paper Series 09-08, Center for Research in Economic Analysis, University of Luxembourg.
  • Handle: RePEc:luc:wpaper:09-08
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    File URL: http://wwwen.uni.lu/content/download/23996/291653/file/2009-08_International%20financial%20competition%20and%20bank%20risk-taking%20in%20emerging%20economies.pdf
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    References listed on IDEAS

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    4. Roberto Steiner & Adolfo Barajas, 2000. "Depositor Behavior and Market Discipline in Colombia," IMF Working Papers 00/214, International Monetary Fund.
    5. Eswar S. Prasad & Raghuram G. Rajan & Arvind Subramanian, 2006. "Patterns of international capital flows and their implications for economic development," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 119-158.
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    12. Vives, Xavier, 2002. "External discipline and financial stability," European Economic Review, Elsevier, vol. 46(4-5), pages 821-828, May.
    13. Angkinand, Apanard & Wihlborg, Clas, 2010. "Deposit insurance coverage, ownership, and banks' risk-taking in emerging markets," Journal of International Money and Finance, Elsevier, vol. 29(2), pages 252-274, March.
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    More about this item

    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
    • F39 - International Economics - - International Finance - - - Other
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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