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Financial markets development and bank risk: Experience from Thailand during 1990–2012

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  • Vithessonthi, Chaiporn

Abstract

The relation between financial markets development and bank risk in Thailand during 1990–2012 is examined. After controlling for macro-level and firm-level variables, stock market development is positively associated with banks’ capitalization ratio, and is negatively related to their beta. While banking sector development has no effect on the banks’ capitalization ratio, it has a positive effect on their beta. In addition, banking sector development is negatively related to the banks’ capitalization ratio when measured as the Tier 1 capital to total risk-weighted assets ratio during 2000–2012. Overall, two dimensions of financial markets development seem to have opposing effects on bank risk. While stock market development tends to lower the banks’ beta, banking sector development induces the instability of the banking system by lowering the banks’ capitalization ratio and by increasing the banks’ beta.

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  • Vithessonthi, Chaiporn, 2014. "Financial markets development and bank risk: Experience from Thailand during 1990–2012," Journal of Multinational Financial Management, Elsevier, vol. 27(C), pages 67-88.
    • Handle: RePEc:eee:mulfin:v:27:y:2014:i:c:p:67-88
    DOI: 10.1016/j.mulfin.2014.05.003
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    More about this item

    Keywords

    Bank capitalization; Bank risk; Financial markets development; Financial crises; Thailand;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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