Regulations, competition and bank risk-taking in transition countries

Agoraki, Maria-Eleni, Manthos D. Delis () and Fotios Pasiouras ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Banking sector reform; regulations; competition; risk-taking; CEE banks (search for similar items in EconPapers)
JEL-codes: G38 G32 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-com, nep-mic, nep-reg, nep-rmg and nep-tra
Date: 2009-06-01
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:16495

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