Institutional mechanisms, ownership and bank risk-taking during crises

Thi Thuy Anh Vo and Nathan Lael Joseph

The British Accounting Review, 2025, vol. 57, issue 3

Abstract: Previous studies indicate that prior period investor protection, quality of government/institution and ownership have little to no influence on bank risk-taking around crisis periods. Using contemporaneous data for 40 countries, we show that institutional mechanisms, investor protection, bank regulation and supervision (BRS) rules, and ownership, reduced bank risk-taking around the Global Financial Crisis (GFC) and the Eurozone Crisis/Sovereign Debt Crisis periods. Institutional mechanisms have the strongest risk-reducing impacts on bank risk-taking, whereas foreign and government ownership have the weakest impacts. The greater the distance from bank default the lower the likelihood of crisis regimes. Investor protection increased (decreased) the likelihood of the GFC (Eurozone Crisis) regimes. Government ownership increased (decreased) the likelihood of the GFC (Eurozone Crisis) regimes. Using a generalized bivariate copula function, we untangle the relation between crisis regimes and bank risk-taking by showing that higher risk-taking increases the likelihood of crisis regimes.

Keywords: Bank risk-taking; Investor protection; Institutional mechanisms; Ultimate ownership; Bank regulation; Bivariate copula function; Crisis regimes (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 G32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:57:y:2025:i:3:s0890838924002154

DOI: 10.1016/j.bar.2024.101451

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