Financial markets development,business cycles,and bank risk in South America |
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| Institution: | 1. Faculty of Management Science, Khon Kaen University, Muang, Khon Kaen 40002, Thailand;2. Miyazaki International College, 1405 Kano, Kiyotake, Miyazaki 889-1605, Japan;1. Monash Business School, Monash University, Melbourne, Vic 3800, Australia;2. Discipline of Accounting and Finance, Newcastle Business School, University of Newcastle, Sydney, NSW 2000, Australia;3. Department of Banking and Finance, Monash Business School, Monash University, Melbourne, Vic 3800, Australia;4. School of Commerce, University of Southern Queensland, Toowoomba, Qld 4350, Australia;1. Department of Accountancy and Finance, School of Business, University of Otago, PO Box 56, Dunedin 9054, New Zealand;2. Miyazaki International College, 1405 Kano, Kiyotake, Miyazaki 889-1605, Japan;1. Wits Business School, University of the Witwatersrand, 2 St David’s Place, Parktown Johannesburg, 2193, South Africa;2. School of Business and Law, Department of Banking and Finance, University for Development Studies, Box UPW 36, Wa, Ghana |
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| Abstract: | In this paper, we examine whether banking crises or business cycles affect the influence of financial markets development on bank risk in a sample of 37 publicly listed commercial banks in seven South American countries over a 22-year period between 1991 and 2012. Banking crises in this region offer a natural setting in which the impact of financial markets development on bank risk is examined. We find that financial markets development improves banks’ capitalization ratio and reduces their exposure to non-traditional banking activities, suggesting that financial markets development on average reduces bank risk. In addition, banking crises and business cycles appear to moderate the impact of financial markets development on bank risk. In the aftermath of banking crises, banks appear to concentrate more on their core traditional banking activities. |
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| Keywords: | Capitalization Banking crisis Bank risk Financial markets development South America |
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