Bank market power, economic growth and financial stability: Evidence from Asian banks |
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Authors: | Wahyoe Soedarmono Fouad Machrouh Amine Tarazi |
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Affiliation: | aUniversité de Limoges, LAPE, 5 rue Félix Eboué, BP 3127, 87031 Limoges, France;bInstitut Supérieur de Commerce et d’Administration des Enterprises, Km 9.5 Route Nouasseur, BP 8114, Casablanca, Oasis, Morocco |
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Abstract: | This paper examines whether Asian banks are still prone to moral hazard in the aftermath of the 1997 Asian crisis. Using a sample of commercial banks from 12 Asian countries during the 2001–2007 period, our empirical findings highlight that greater market power in the banking market results in higher instability. Although banks are better capitalized in less competitive markets their default risk remains higher. A deeper investigation however shows that such behaviour is dependent on the economic environment. Higher economic growth contributes to neutralize greater risk taking and higher instability in less competitive markets. |
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Keywords: | JEL classification: G21 G28 L11 |
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