BANK CAPITAL INFLOWS, INSTITUTIONAL DEVELOPMENT AND RISK: EVIDENCE FROM PUBLICLY - TRADED BANKS IN ASIA

Wahyoe Soedarmono

Bulletin of Monetary Economics and Banking, 2011, vol. 14, issue 2, 135-150

Abstract: This paper examines the relationship between bank capital inflows and financial stability. Using a sample of publicly-traded commercial banks in Asia over the 2002-2008 period, our empirical results show that higher banking inflows measured by the share of foreign liabilities in banking reduces systematic risk, but increases bank-specific risk and total risk. A deeper investigation further suggests that an increase in total risk and bank-specific risk is driven by strong institutional development. Specifically, higher foreign liabilities in banking exacerbate bank-specific risk and total risk in countries with greater economic freedom. Hence, the reinforcement of prudential regulations is necessary to overcome bank-specific risk and total risk, particularly when the countries move to a more liberal economic environment.

Keywords: Banking Globalization; Economic Freedom; Capital Market Measures of Risk (search for similar items in EconPapers)
JEL-codes: G21 G28 G38 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:idn:journl:v:14:y:2011:i:2b:p:135-150

DOI: 10.21098/bemp.v14i2.460

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