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Economic Activity and Financial Institutional Risk: an empirical analysis for the Brazilian banking industry

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  • Helder Ferreira de Mendonça
  • Délio José Cordeiro Galvão
  • Renato Falci Villela Loures

Abstract

This paper analyzes the impact of the changes in capital requirements on bank’s risk and the trade-off between economic activity and the risk of financial institutions in the Brazilian economy. Hence, an analysis based on dynamic panel data taking into account 73 banks and a vector autoregression analysis for the period from 2001 to 2008 is made. The findings underscore that banks which adopt riskier strategies reach higher profitability. Moreover, the results suggest that the banking regulation is an important instrument for reaching the balance between the economic growth and the low exposition to the risk of banking firms in markets such as the Brazilian one.

Suggested Citation

  • Helder Ferreira de Mendonça & Délio José Cordeiro Galvão & Renato Falci Villela Loures, 2011. "Economic Activity and Financial Institutional Risk: an empirical analysis for the Brazilian banking industry," Working Papers Series 243, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:243
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    File URL: https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/wps243.pdf
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    References listed on IDEAS

    as
    1. Gerard Caprio & Patrick Honohan, 2008. "Banking Crises," Center for Development Economics 2008-09, Department of Economics, Williams College.
    2. Helder Mendonça & Renato Villela Loures, 2009. "Market discipline in the Brazilian banking industry: an analysis for the subordinated debt holders," Journal of Regulatory Economics, Springer, vol. 36(3), pages 286-307, December.
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    Cited by:

    1. Tabak, Benjamin M. & Takami, Marcelo & Rocha, Jadson M.C. & Cajueiro, Daniel O. & Souza, Sergio R.S., 2014. "Directed clustering coefficient as a measure of systemic risk in complex banking networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 394(C), pages 211-216.
    2. Ornelas, José Renato Haas & Barbachan, José Santiago Fajardo & Farias, Aquiles Rocha de, 2012. "Estimating relative risk aversion, risk-neutral and real-world densities using brazilian real currency options," EBAPE Working Papers 1, FGV EBAPE - Escola Brasileira de Administração Pública e de Empresas (Brazil).
    3. Montes, Gabriel Caldas & Peixoto, Gabriel Barros Tavares, 2014. "Risk-taking channel, bank lending channel and the “paradox of credibility”," Economic Modelling, Elsevier, vol. 39(C), pages 82-94.
    4. Helder de Mendonca, 2007. "Towards credibility from inflation targeting: the Brazilian experience," Applied Economics, Taylor & Francis Journals, vol. 39(20), pages 2599-2615.
    5. Gabriel Barros Tavares Peixoto & Gabriel Caldas Montes, 2014. "Risk-Taking Channel, Bank Lendingchannel And The “Paradox Of Credibility”: Empirical Evidence For Brazil," Anais do XL Encontro Nacional de Economia [Proceedings of the 40th Brazilian Economics Meeting] 030, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].

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