Country Risk and Bank Stability

Jiang-Chuan Huang () and Hueh-Chen Lin ()
Additional contact information
Jiang-Chuan Huang: School of Business, Putian University, Fujian, China.
Hueh-Chen Lin: School of Business, Putian University, Fujian, China. Email: imhjlin@foxmail.com. Corresponding author.

Journal for Economic Forecasting, 2021, issue 3, 72-96

Abstract: This paper examines the impact of country risk on bank stability using data for more than 500 banks from 21 developed and 18 emerging countries over the period 2009-2018. As country risk is a multi-faceted concept, we employ three one-dimensional factors from 22 indicators of the ICRG country risk rating system: political risk, economic risk and financial risk. Likewise, we apply the dynamic factor analysis on 25 CAMEL indicators of banking risk to come up with our preferred measures of bank stability. And then, we construct a multilevel quantile regression model to estimate the effect of country risk on bank stability. Our main findings are as follows. First, political risk, economic risk and financial risk as well as country risk have a negative and significant effect on bank stability. Moreover, the effect seems to be stronger among high-instability banks. Second, the financial liberalization, bank concentration, size of bank, and dispersed ownership do not have a uniform impact on bank stability across quantiles although they are the factors significantly decreasing the stability of banks which are highly unstable. Third, the impact of country risk on bank stability is more pronounced in the emerging countries as compared to the developed countries. Overall, country risk will remain crucially important for explaining the variation in bank stability, especially in the emerging countries.

Keywords: political risk; economic risk; financial risk; bank stability; quantile regression (search for similar items in EconPapers)
JEL-codes: G18 G21 G28 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.ipe.ro/rjef/rjef3_21/rjef3_2021p72-96.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rjr:romjef:v::y:2021:i:3:p:72-96

Access Statistics for this article

Journal for Economic Forecasting is currently edited by Lucian Liviu Albu and Corina Saman

More articles in Journal for Economic Forecasting from Institute for Economic Forecasting Contact information at EDIRC.
Bibliographic data for series maintained by Corina Saman ( this e-mail address is bad, please contact ).