BANK CAPITAL INFLOWS, INSTITUTIONAL DEVELOPMENT AND RISK: EVIDENCE FROM PUBLICLY - TRADED BANKS IN ASIA

• Main Author: Wahyoe Soedarmono
• Format: Article
• Language: Indonesian
• Published: Bank Indonesia 2012-01-01
• Series: Bulletin Ekonomi Moneter dan Perbankan
• Online Access: https://www.bmeb-bi.org/index.php/BEMP/article/view/460

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.   JEL Classification : G21, G28, G38 Keywords : Banking Globalization, Economic Freedom, Capital Market Measures of Risk