Bank Market Power, Economic Growth and Financial Stability: Evidence from Asian Banks

Wahyoe Soedarmono, Fouad Machrouh and Amine Tarazi
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Fouad Machrouh: LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges

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Abstract: This paper examines whether Asian banks are still prone to moral hazard in the aftermath of the 1997 Asian crisis. Using a sample of commercial banks from 12 Asian countries during the 2001-2007 period, our empirical findings highlight that greater market power in the banking market results in higher instability. Although banks are better capitalized in less competitive markets their default risk remains higher. A deeper investigation however shows that such behaviour is dependent on the economic environment. Higher economic growth contributes to neutralize greater risk taking and higher instability in less competitive markets.

Keywords: Market power; Financial fragility; Economic growth; Asian banks (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (72)

Published in Journal of Asian Economics, 2011, 22 (6), pp.460-470. ⟨10.1016/j.asieco.2011.08.003⟩

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Journal Article: Bank market power, economic growth and financial stability: Evidence from Asian banks (2011)
Working Paper: Bank market power, economic growth and financial stability: Evidence from Asian banks (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00785490

DOI: 10.1016/j.asieco.2011.08.003

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