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Capital Flows And Risk-Taking Behaviour

Author

Listed:
  • Bayront Y. Rumondor
  • Pakasa Bary

Abstract

This paper investigates the impact of liquid capital flows on bank behavior, particularly on risk-taking behavior. This study employs three sections of empirical assessment, namely (i) industry level estimations; (ii) industry-level estimations which allow different characteristics of large banks; and (iii) multi-country analysis that covers data of emerging market economies. Estimation results suggest that capital inflows, particularly in the form of portfolio investment, is significant in raising banks' risk-taking behavior. Moreover, large banks are less aggressive in their risk taking behavior vis a vis smaller banks. Such impact of portfolio investment on risk-taking behavior is also shown in multi-country assessments. There is some evidence that the effect of portfolio investment on risk-taking behavior is relatively persistent.

Suggested Citation

  • Bayront Y. Rumondor & Pakasa Bary, 2018. "Capital Flows And Risk-Taking Behaviour," Working Papers WP/23/2018, Bank Indonesia.
    • Handle: RePEc:idn:wpaper:wp232018
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    capital flows; risk-taking behavior; panel data;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • F0 - International Economics - - General
    • F1 - International Economics - - Trade

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