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Bank Capital Inflows, Institutional Development And Risk: Evidence From Publicly - Traded Banks In Asia

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  • Wahyoe Soedarmono

    (University of Limoges)

Abstract

This paper examines the relationship between bank capital inflows and financial stability. Using a sample of publicly-traded commercial banks in Asia over the 2002-2008 period, our empirical results show that higher banking inflows measured by the share of foreign liabilities in banking reduces systematic risk, but increases bank-specific risk and total risk. A deeper investigation further suggests that an increase in total risk and bank-specific risk is driven by strong institutional development. Specifically, higher foreign liabilities in banking exacerbate bank-specific risk and total risk in countries with greater economic freedom. Hence, the reinforcement of prudential regulations is necessary to overcome bank-specific risk and total risk, particularly when the countries move to a more liberal economic environment.

Suggested Citation

  • Wahyoe Soedarmono, 2011. "Bank Capital Inflows, Institutional Development And Risk: Evidence From Publicly - Traded Banks In Asia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 14(2), pages 135-150, October.
    • Handle: RePEc:idn:journl:v:14:y:2011:i:2b:p:135-150
    DOI: https://doi.org/10.21098/bemp.v14i2.460
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    Keywords

    Banking Globalization; Economic Freedom; Capital Market Measures of Risk;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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