Monetary policy and bank risk-taking: Evidence from emerging economies

This paper addresses the impact of monetary policy on banks' risk-taking by using bank-level panel data from more than 1000 banks in 29 emerging economies during 2000–2012. We find that, consistent with the proposition of the “bank risk-taking channel” of monetary policy transmission, banks' riskiness increases when monetary policy is eased. This result is robust when we adopt alternative measures of monetary policy and bank risk, and use different econometric methodologies. In addition, we find that bank risk-taking amid expansionary monetary policy is less conspicuous in a more consolidated banking sector and when monetary policy is more transparent.     

Corruption and bank risk-taking: Evidence from emerging economies

This paper addresses the impact of corruption on banks' risk-taking behavior, using bank-level data from more than 1200 banks in 35 emerging economies during the period 2000–2012. We find consistent evidence that higher levels of corruption increase the risk-taking behavior of banks, in favor of the “sand the wheel” view in the corruption-development nexus. In addition, we examine the indirect effects of corruption on bank risks, and find evidence that the impact of monetary policy on banks' risk-taking behavior is more pronounced with the increasing severity of corruption.     

Does inside debt alleviate banks' risk taking? Evidence from a quasi-natural experiment in the Chinese banking industry

This paper investigates the causal effects of inside debt on banks' risk-taking behavior by using a quasi-natural experiment of compensation deferring policy in the Chinese banking industry. We find that the policy reduces banks' risk-taking by approximately 16.25%. Banks with high levels of government control significantly reduced their risk-taking after the compensation deferring policy was enacted, while those with low levels did not have the same response. By showing that CEOs' compensation deferring significantly reduces banks' risk-taking in an emerging market, we offer direct evidence for the academic understanding of the governance role of inside debt in emerging markets with weak country-level investor protection. Our results provide timely empirical evidence for government regulators who are concerned about the costs and benefits of banks' risk shifting or the risk of the financial system.     

Cross-sectional determinants of bank performance under deposit dollarization in emerging markets

Dollar-denominated deposits and loans could increase financial fragility in emerging market banking systems. This currency mismatch does not only increase banks' currency risk when the proportion of dollar-denominated loans with respect to local-denominated loans increases but also it increases their clients' default risk if depreciation occurs. This paper investigates the profitability of 36 dollarized banking systems. Results suggest that after controlling for some macroeconomic and institutional variables, dollarization, as the currency mismatch hypothesis suggests, depresses bank performance and lowers bank profitability. Results also show that the effect of institutions more than offsets the negative impact of dollarization on banks' profitability.     

Market power and risk-taking of banks: Some semiparametric evidence from emerging economies

We investigate the impact of market power of banks on their risk-taking. Appling bank-level data from 35 emerging economies during the period of 2000–2014 to our semiparametric model of the market power-bank risk nexus with the Bayesian inference, we present consistent evidence that there is a significant nonlinear relationship between market power and risk-taking of banks. Bank stability is found bolstered with increasing market power, but this relationship tends to weaken and even reverse as banks' market power grow further over a threshold level.     

The effect of stimulus policy on lending behavior and bank risk: Evidence from the Chinese banking sector

Considering China's stimulus policy in 2008 as a quasi-natural experiment, our study attempts to provide evidence to understand how expansionary monetary policy is likely to influence bank risk-taking in emerging markets, specifically in China. Using data on Chinese counties from 2006 to 2011, we theoretically discuss and empirically observe a positive relationship between the stimulus policy and bank risk-taking, as measured by nonperforming loans. Such a nexus stems from the negative effect of the stimulus policy on banks' lending standards and the positive effect on banks' credit support to small and medium sized enterprises. In addition, our study is enriched by estimating the moderating effects of bank capitalization based on the “risk-shifting” effect and “search for yield” effect caused by the stimulus policy. Specifically, we find important differences across banking groups, such that small and medium-sized banks with low capitalization increase their exposure to risk, while large state-owned banks with high capitalization notably reduce their risk tolerance. The results of this study may help to characterize monetary policy and macro prudential regulation, especially for emerging economies.     

Economic policy uncertainty,bank deposits,and liability structure

This study used data from 2009 to 2017 to investigate the impact of economic policy uncertainty (EPU) on the liability side of Chinese commercial banks. The results show that the increase in EPU leads commercial bank customers to shift from term to demand deposits, which shortens deposit maturity and triggers commercial banks' liquidity-hoarding behavior. Our research provides insights into the motives and strategies behind commercial banks' liquidity hoarding and offers implications for risk management, monetary policy, and systemic financial risk prevention.     

The determinants of Islamic bank capital decisions

We report new evidence on the bank and institutional determinants of Islamic bank capital ratios in 28 countries between 1999 and 2013. Overall, we find that smaller, more profitable, and highly liquid Islamic banks are more highly capitalized. Additionally, improvements in the economic and financial environments and market discipline within a country correspond with higher Islamic bank capitalization. The results shed light on the impact that Sharia'a law restrictions have on Islamic banking capitalization. Our findings are most robust to banks that choose to hold capital well in excess of that required by regulators, consistent with traditional capital structure theory. Our results highlight the role that stable economic and political systems play in improving bank capitalization and reducing financial sector risk. By reducing political instability and corruption, improving legal systems, and encouraging access to capital markets, policymakers may incentivize managers to make financing decisions that increase the capitalization of the Islamic banking industry in developing countries.     

Corporate environmental responsibility and bank loans

Drawing on both qualitative analyses of banks' sustainability reports and quantitative analyses of 11,538 bank loans from 1993 to 2018, we explore interactions between corporate environmental responsibility (CER) and bank loan contracting. We find CER dominates how corporate social responsibility (CSR) affects bank loans. We propose a two-way relationship between CER and bank loans. Firms with strong CER performance receive cheaper bank loans due to banks' environmental risk management efforts. These banks provide services to corporate borrowers that have a positive influence on borrowers' ongoing environmental performance.     

Banking sector reforms and corporate leverage in emerging markets

Using a large panel of non-financial firms in emerging markets, we study the relation between detailed measures of banking sector reforms and corporate leverage. We find that banking sector reforms are associated with lower corporate debt in emerging market firms, consistent with the notion that these reforms improve banks' risk management and result in tighter lending standards, leading firms to use less bank debt in their capital structure. These effects are less pronounced for financially constrained firms, suggesting a relative increase in the supply of bank credit to firms which were rationed prior to the banking sector reforms.     

How do emerging debt market participants recognize firm internationalization?Evidence from effects on credit ratings

We explore the firm internationalization's impact on firm credit ratings in emerging economies. Adopting Chinese data from 2009 to 2018, we document that firm internationalization varies negatively with its credit ratings, indicating that emerging debt market participants are risk averse and prioritize the risks involved in firm internationalization endeavors. This association is amplified for firms operating in host countries with lower institutional quality, decreased cultural distance from home countries, and when firms do not hold tax haven subsidiaries. We observe that the main association is consistent when alternative dataset (India, Russia, and Brazil) or proxy (cost of debt) is applied.     

行政处罚对银行风险承担的影响：仅罚机构还是兼罚责任人？

立足于我国监管部门大力整治银行业市场乱象的现状，文章系统梳理了不同类型行政处罚对银行风险承担的影响机制，并利用手工整理的2008-2018年银行行政处罚数据，对理论假说进行实证检验。经验结果显示，“仅机构处罚”不能显著降低银行风险承担水平，“双罚”可以有效抑制银行风险承担，并且这种抑制作用具有长期效应。异质性检验表明，“双罚”对大银行、国有银行和全国性银行风险的抑制作用更明显。机制检验发现,减少理财产品、同业业务等影子银行规模是“双罚”降低银行风险承担的重要渠道。研究还发现，随着责任人处罚严厉程度的上升，“双罚”对银行风险承担的抑制效果越好。政策启示在于，加大责任人问责力度，整治影子银行乱象，是监管部门防范银行风险的关键所在。     

The influence of risk-taking on bank efficiency: Evidence from Colombia

This paper shows evidence on the influence of risk-taking on bank efficiency in emerging markets and identifies heterogeneity in the way risk affects banks with different characteristics. We fit a stochastic frontier model with random inefficiency parameters to a sample of Colombian banks. The model provides accurate cost and profit efficiency estimates. The effects of risk-taking on efficiency vary with size and affiliation. Large and foreign banks benefit more from higher exposure to credit and market risk, while domestic and small banks from being more capitalised. We identify some channels explaining these differences and provide insights for prudential regulation.     

The contribution of macroprudential policies to banks' resilience: Lessons from the systemic crises and the COVID-19 pandemic shock

This study examines the effectiveness of macroprudential policies in reducing the banks' risk during the COVID-19 pandemic and compares these results with the systemic banking crises years. Based on a sample of 624 banks across 40 countries during the period 2006–2020, we find that loosening capital-aimed macroprudential policies effectively reduced banks' risk during the COVID-19 pandemic, while this behavior led to increased risk during the systemic crises years. In contrast, tightening the remaining macroprudential policies during the systemic crises years and during the pandemic proved effective in reducing banks' risk. Furthermore, we show that the magnitude of the impact of macroprudential policies was stronger during the systemic crisis than that during the pandemic. Finally, we show that the results are driven by the capital requirement prudential policy, both during the systemic crisis and the COVID-19 pandemic, although the conservation buffer and the leverage limit also contributes to the ineffectiveness of these policies during the COVID-19 pandemic. The banks' leverage and loan growth also play an enhancing role of the effects of the macroprudential policies.     

Optimal screening capacity and perceived risk of mortgage banks across countries

In this paper, we investigate the optimal combination of the levels of perceived risk and screening capacity that maximizes the fair value of a mortgage bank, while considering the probability of bank failure and the distribution borrower's wealth across emerging and developed countries. This is a novel contribution to the current literature that does not address that optimal combination and its dependency on the distribution borrower's wealth.We show that in countries where both levels of inequality of borrowers' wealth and the amount of the maximum wealth are high, the bank prefers to adopt a very severe level of perceived risk and cut down the screening capacity to the lowest level that enables the bank to be successful in lending its allotted funds. In countries where the level of wealth inequality decreases, the bank prefers to keep the severe level of perceived risk while increasing its screening capacity. Only when the level of screening capacity is bounded, the bank freezes its level of screening capacity while adopting a medium level of perceived risk.     

Does foreign direct investment promote institutional development in Africa?

Foreign direct investment (FDI) inflows into Africa have increased since the turn of the millennium, mainly due to FDI growth into African countries by multinational enterprises (MNEs) from developing economies. While African governments view this growth as a positive development for the continent, many governments in the West have raised concerns regarding the institutional impact of investments from developing economies. This paper examines the impact of FDI flows on institutional quality in African countries by distinguishing investments from developed versus developing economies. Previous empirical studies have found a significant relationship between FDI flows and institutional quality in African countries but regard the relationship as MNEs rewarding African countries for adopting institutional reforms. However, little attention has been paid to the reverse causality, i.e. that FDI can cause an institutional change in African countries. Using bilateral greenfield FDI flows between 56 countries during 2003?2015, we find no significant FDI effect from developed and developing economies on institutional quality in host countries. However, aggregate FDI flows from developed and developing economies have a significant positive effect on host country institutional quality but differ concerning the impact's timing. In contrast, we find no significant effect of FDI flows from China on host country institutional quality. Our results are robust to alternative measures of institutional quality.     

Central banks' supervisory guidance on corporate governance and bank stability: Evidence from African countries

This paper focuses on the identification of the causal relationship between central banks' supervisory guidance and individual bank stability. We propose and test the hypothesis that this causal relationship is mediated by the degree to which banks comply with their central bank's corporate governance recommendations. Specifically, we exploit the fact that there is considerable cross-country heterogeneity in providing supervisory guidance. Our recursive two-equation system is equivalent to an endogenous treatment effect model in which the treatment is the provision of supervisory guidance. We find that institutional factors, in particular the legal family of origin, political stability, contract enforcement and strength of investor protection promote provision of supervisory guidance. If a central bank has published supervisory guidance, local banks show better internal governance and higher stability.     

A multi-country study of bank reputation among customers in Africa: Key antecedents and consequences

This paper studies the antecedents related to service quality and the consequences of bank reputation among bank customers in three prominent markets in Africa, the continent on which one of the banking industries with the highest potential in the world is located. The research hypotheses were tested through the use of partial least squares modelling and by employing data collected from almost 1000 retail-banking customers from Ghana (n = 349), Kenya (n = 337), and South Africa (n = 300). An analysis of these data indicates that service quality dimensions, namely service offering appeal and customer care, meaningfully contribute to the strong perceptions customers have of their banks as regards reputation. The positive role of bank reputation in the development of trust and customer loyalty is also validated in this study. Furthermore, the multi-group analysis shows differences among countries in the case of all the relationships analysed, with the exception of the weight of customer care on bank reputation. Finally, the conclusion is reached that bank managers should focus their reputational strategies on improving the competitiveness of their bank products and should consider subtle institutional differences outside the bank's home-country in order to succeed in their internationalization strategies on the continent.     

On the Behavior and Determinants of Risk‐Based Capital Ratios: Revisiting the Evidence from UK Banking Institutions*

Using bank‐level panel data from the United Kingdom, this paper investigates the factors that influence banks' choice of risk‐based capital ratios. The study focuses on evaluating the role of regulatory capital requirements. Findings indicate that such requirements, even when not binding, affect banks' capital management practices and suggest that banks maintain targeted buffers above regulatory thresholds. That behavior differs across several dimensions, including bank size, nearness to regulatory minimum, reliance on core (equity) capital and exposure to market discipline. Capital ratios also vary over the economic cycle. These findings have implications for the ongoing review of international capital standards.     

Bank Lending Channel of Monetary Policy: Dynamic Panel Data Study of Malaysia

This paper aims to investigate the relevance of bank-lending channel (BLC) of monetary policy in a small-open economy, i.e. Malaysia by using disaggregated bank-level data. A dynamic panel data method namely generalized method of moments (GMM) procedure has been used in estimating the dynamic of banks' loan supply function. The empirical evidence revealed that the banks' loan supply is significantly and negatively influenced by monetary policy shocks, and therefore has supported the existence of BLC in Malaysia. Several bank-characteristics variables namely bank liquidity and bank capitalization (capital adequacy ratio) are also statistically significant in influencing the banks' loan supply.