Financial liberalization and bank risk-taking: International evidence

Elena Cubillas and Francisco González

Journal of Financial Stability, 2014, vol. 11, issue C, 32-48

Abstract: This paper analyzes the channels through which financial liberalization affects bank risk-taking in an international sample of 4333 banks in 83 countries. Our results indicate that financial liberalization increases bank risk-taking in both developed and developing countries but through different channels. Financial liberalization promotes stronger bank competition that increases risk-taking incentives in developed countries, whereas in developing countries it increases bank risk by expanding opportunities to take risk. Capital requirements help reduce the negative impact of financial liberalization on financial stability in both developed and developing countries. However, official supervision and financial transparency are only effective in developing countries.

Keywords: Financial liberalization; Bank risk-taking; Banking competition; Capital requirements; Supervision (search for similar items in EconPapers)
JEL-codes: F36 G21 G28 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (83)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:11:y:2014:i:c:p:32-48

DOI: 10.1016/j.jfs.2013.11.001

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