Interest rate deregulation and banks' off-balance-sheet activities: a Hong Kong perspective

Cheng, Fung, Hu and Cheng

Applied Economics, 2015, vol. 47, issue 47, 5088-5102

Abstract: Through the interest rate deregulation and banks' off-balance-sheet activities (OBSAs) in Hong Kong, this study investigates the debate over the impact of banking deregulation on banks' risk-taking behaviour. On the one hand, the Arrow effect implies that increased competition caused by the interest rate deregulation motivates Hong Kong banks to speed up their development of OBSAs as an additional but riskier income source. On the other hand, the Schumpeterian effect implies that the deregulation may reduce the banks' financial capability in developing new products and thus downscale their OBSA adoption. Our findings show that, while the negative scale effect is statistically insignificant, the interest rate deregulation has a positive and significant impact on the adoption rate for all OBSA categories. We therefore conclude that the interest rate deregulation unambiguously leads to riskier bank behaviour in terms of higher OBSA adoption.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2015.1042144 (text/html)
Access to full text is restricted to subscribers.

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:taf:applec:v:47:y:2015:i:47:p:5088-5102

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2015.1042144

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().