Financial Integration, Competition and Bank Risk-Taking Behavior: Evidence from Africa’s Sub-Regional Markets

Kannyiri Banyen ()
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Kannyiri Banyen: Simon Diedong Dombo University of Business and Integrated Development Studies, Postal: Department of Banking and Finance, School of Business, Simon Diedong Dombo University of Business, and Integrated Development Studies, Ghana.

Journal of Economic Integration, 2021, vol. 36, issue 2, 282-307

Abstract: Financial integration is generally associated with the development of synergies through cross-border banking and investment activities and increased competitiveness among banks. This paper examines the effects of shifts in financial freedom and competition on bank risk-taking behavior using data from 405 banks in 47 African countries across five regional economic communities from 2007-2014. The core findings suggest that financial integration directly increases bank risk-taking behavior in Africa through rising competition. The results also support an inverted U-shaped relationship between competition and bank risk-taking behavior. However, disparities in the results across sub-regional markets suggest that financial integration policies must be tailored to suit the market characteristics of each regional bloc. Overall, the study identifies deficiencies in competitiveness as a fundamental variable that hinders banks’ ability to benefit from the opportunity of stability offered by financial integration in emerging economies.

Keywords: Financial Integration; Bank Competition; Risk-Taking Behavior; Africa (search for similar items in EconPapers)
JEL-codes: F36 F65 G21 N27 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0828

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