The Effect of Corporate Transparency on Bank Risk-Taking and Banking System Fragility

After the financial crisis of 2007–2008, some bank performance dimensions have been the subject of debate, two of which are bank efficiency and bank risk-taking behavior. The literature on bank efficiency and productivity has grown considerably over the past three decades, and has gained momentum in the aftermath of the financial crisis. Interest in bank risk-taking behavior, usually focusing on its links to monetary policy, has been relatively low, but has also increased exponentially in more recent years. This article combines these two streams of research. Specifically, we test whether more inefficient banks take greater risks when selecting borrowers, charging interests, and requiring collateral, and whether these links between inefficiency and risk change according to the type of bank. Our analysis centers on the Spanish banking system, which has been severely affected by the burst of the housing bubble and has undergone substantial restructuring. To test our hypotheses, we created a database with information on banks and savings banks, their borrowers (non-financial firms), and the links between them. The study also contributes to the literature by considering a novel profit frontier approach. Our results suggest that more inefficient banks take greater risks in selecting their borrowers, and that this high-taking behavior is not offset by higher interest rates. JEL CLASSIFICATION C14; C61; G21; L50

Download Full-text

Intellectual Capital and Bank Risk in Vietnam—A Quantile Regression Approach

Journal of Risk and Financial Management ◽

10.3390/jrfm14010027 ◽

2021 ◽

Vol 14 (1) ◽

pp. 27

Author(s):

Dat T. Nguyen ◽

Tu D. Q. Le ◽

Tin H. Ho

Keyword(s):

Quantile Regression ◽

Credit Risk ◽

Intellectual Capital ◽

Risk Taking ◽

Banking System ◽

Value Added ◽

Bank Risk ◽

Data Set ◽

Long Run ◽

Capital Efficiency

This study empirically presents evidence of nonlinearity and heterogeneity relation between intellectual capital and risk-taking for the Vietnamese banking system. We used quantile regression methods on a data set of 30 Vietnamese banks from 2007 to 2019. The results showed that bank insolvency was positively affected by its value-added intellectual coefficient (VAIC) at the upper quantiles (i.e., 80th and 90th), while the opposite was true for credit risk (i.e., 10th and 20th quantiles). When observing the VAIC’s components, risk-taking behaviors were also significantly affected by HCE (Human Capital Efficiency), CEE (Capital Employed Efficiency) and SCE (Structural Capital Efficiency) at the 90th quantile of instability distribution and the 10th quantile of credit risk distribution. Furthermore, the results also emphasized that there was an inverse U-shaped association between intellectual capital and bank risk-taking. Therefore, this study provides important implications for policymakers, regulators, bank managers and academics that encourage increasing investment in knowledge assets to minimize bank risks in the long run.

Download Full-text

Impact of Noninterest Income on Bank Risk-Taking and Bank Lending Spread

Review of Pacific Basin Financial Markets and Policies ◽

10.1142/s0219091521500296 ◽

2021 ◽

Author(s):

Muhammad Jawad ◽

Munazza Naz ◽

Muhammad Aftab Shamsi

Keyword(s):

Risk Taking ◽

Regulatory Authority ◽

Generalized Method Of Moments ◽

Banking System ◽

Bank Lending ◽

Bank Risk ◽

Risky Assets ◽

Interest Income ◽

Regulatory Perspective ◽

The Impact

This study investigates the impact of diversification between traditional margin income and nontraditional income (noninterest-based income) on bank risk-taking and bank lending spread for banks operating in Pakistan. Bank risk is measured with the nonperforming loan ratio and bank [Formula: see text]-score. Data of this study is obtained from financial statements, which are an annual publication of State Bank of Pakistan, for the period 2006–2016 for 52 banks in Pakistan. Panel regression with the generalized method of moments (GMM) estimator is employed. The study reveals that an increase in noninterest income increases bank risk-taking (spending on highly risky assets), as noninterest income is riskier than interest income. It is also revealed that banks with greater dependence on noninterest income may grant a loan with lower lending spread. These results have implications for the betterment of the banking system, regulatory authority, and stakeholders as well. From a regulatory perspective, the study provides guidelines for making rules and regulations to control and monitor the dependence on noninterest income as well as on interest income. Pakistan banks regulatory authority should focus on the increase in disclosure of the composition of noninterest income and this disclosure would increase understanding of changing environment of banking in Pakistan.

Download Full-text

The Impact of Regulatory Capital and Bank Characteristics on the Relationship between Bank Competition and Risk Taking in the Banking System

JABM JOURNAL of ACCOUNTING - BUSINESS & MANAGEMENT ◽

10.31966/jabminternational.v28i1.828 ◽

2021 ◽

Vol 28 (1) ◽

pp. 87

Author(s):

Eman Abdel-Wanis

Keyword(s):

Risk Taking ◽

Negative Impact ◽

Positive Impact ◽

Banking System ◽

Bank Risk ◽

Bank Competition ◽

Regulatory Capital ◽

The Impact ◽

The Relationship ◽

Positive Effect

This paper explores the association between bank competition, regulatory capital, and bank risk taking in an Egyptian setting and to examine the interaction between bank competition and regulatory capital and their impact on bank risk taking in developing countries like Egypt and also investigate the effect of bank characteristics on the relationship between bank competition and bank risk taking through a sample of 27 Egyptian listed banks during the period 2012-2018 using OLS regression . Results indicated that there is a negative impact of bank competition on the bank risk taking and a positive effect of regulatory capital on bank risk taking in the Egyptian listed banks. Results show that increase regulatory play a vertical role in enhance association between competition and bank risk taking and also, there is a positive impact of bank characteristics like: bank size and divarication on bank risk taking in the Egyptian banks. Results refer to there is no effect of bank type, leverage and profitability to support the relationship between bank competition and risk taking

Download Full-text

Market Concentration, Capital and Risk Taking in Banking Industry

Jurnal Manajemen Teori dan Terapan | Journal of Theory and Applied Management ◽

10.20473/jmtt.v14i1.25922 ◽

2021 ◽

Vol 14 (1) ◽

pp. 69

Author(s):

Erika Sefila Putri ◽

Rahmat Setiawan

Keyword(s):

Risk Taking ◽

Commercial Banks ◽

Banking Industry ◽

Banking System ◽

Market Concentration ◽

Bank Risk ◽

Bank Capital ◽

Banking Market ◽

The Relationship ◽

Positive Effect

Banking market concentration is an interesting banking topic to study because the banking market structure plays an important role in a country's banking system. This study aims to determine the relationship between banking market concentration and bank risk taking, and bank capital as a moderating variable on the relationship between bank capital and bank risk taking. The test was conducted using multiple linear regression on 104 conventional commercial banks in Indonesia from 2007 to 2016. The results of this study indicate that banking market concentration has a positive effect on bank risk-taking, and bank capital weakens the positive effect of bank market concentration on bank risk-taking.

Download Full-text

DOES DIGITAL FINANCIAL INCLUSION MATTER FOR BANK RISK-TAKING? EVIDENCE FROM THE DUAL-BANKING SYSTEM

Journal of Islamic Monetary Economics and Finance ◽

10.21098/jimf.v7i2.1320 ◽

2021 ◽

Vol 7 (2) ◽

pp. 401-430

Author(s):

Hasanul Banna ◽

Md Rabiul Alam

Keyword(s):

Risk Taking ◽

Default Risk ◽

Strong Association ◽

Generalized Method Of Moments ◽

Banking System ◽

Financial Inclusion ◽

Policy Implications ◽

Bank Risk ◽

Banking Stability ◽

Conventional Banks

This paper examines the nexus between digital financial inclusion (DFI) and levels of bank risk-taking, using a sample of 283 commercial banks (Islamic and conventional) from six countries over the period 2011 to 2019 and deploying panel-corrected standard errors, two-stage least squares-instrumental variables and dynamic panel two-step generalized method of moments estimators. The findings suggest that Islamic banks take more risks than their counterpart conventional banks. The empirical evidence also indicates that an increase in the DFI index score reduces the overall level of bank risktaking and increases that of banking stability for commercial and conventional banks compared to Islamic ones. A strong association between DFI and bank risk-taking suggests that DFI not only reduces the default risk, leverage risk and portfolio risk of banks, but also increases financial mobility in the sample countries. Consequently, an inclusive digitalised banking industry ensures sustainable economic growth, which is likely to help maintain financial sustainability in times of crisis such as the Covid-19 pandemic. Our results are shown to be robust by various robustness checks. The study contributes to both the Islamic and conventional banking, as well as the digital financial inclusion, literature. The findings of the study provide various policy implications for policymakers and standard-setters in the countries examined.

Download Full-text

Competition and Financial Stability in the European Listed Banks

SAGE Open ◽

10.1177/21582440211032645 ◽

2021 ◽

Vol 11 (3) ◽

pp. 215824402110326

Author(s):

Maria Celia López-Penabad ◽

Ana Iglesias-Casal ◽

José Fernando Silva Neto

Keyword(s):

Market Power ◽

Risk Taking ◽

Financial Stability ◽

Banking System ◽

Political Community ◽

Bank Risk ◽

Bank Competition ◽

Banking Competition ◽

The Impact ◽

The Relationship

The analysis of the relationship between bank competition and financial stability remains a controversial issue and widely discussed in the academic and political community. Using a sample of 117 listed banks in 16 European countries for the years 2011 to 2018, the article explores the impact of market power, measured by the Lerner index, on the bank stability, measured by distance-to-default and Z score. Our results show that for the overall sample, higher market power in banking decreases the risky behavior of banks, confirming the “competition-fragility” view. We do not find any support for a U-shaped relationship between competition and bank risk-taking. However, our findings differ from previous studies pointing out that the relationship between bank competition and risk-taking is differentiated depending on whether the bank is based in a country with a more stable banking system or a less stable one. In countries with a less financially stable banking system, increased competition leads to increased bank risk-taking. In countries with a more stable banking system, market power seems not to influence banks’ financial stability. Public policies must guarantee banking competition but limiting excessive bank risk-taking, especially in countries with less financially sound banking systems. The consolidation of European banking can be a key element for achieving these policies.

Download Full-text