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Title: Macroprudential policy, bank competition and bank risk in East Asia
Authors: Chan, KK
Davis, EP
Karim, D
Keywords: macroprudential policy;bank risk;Z score;bank competition
Issue Date: 7-Dec-2021
Publisher: National Institute of Economic and Social Research
Citation: Davis, E.P., Karim, D. and Chan, K.K. (2021) Macroprudential policy, bank competition and bank risk in East Asia. London: NIESR Discussion Paper No. 533, pp. 1 - 39. Available at: (Accessed: 7 December 2021).
Series/Report no.: NIESR Discussion Paper;No 533
Abstract: Studies of the effect of macroprudential policy on bank risk tend to disregard the potential complementary role of bank competition, which could influence policy’s effectiveness in achieving its financial stability objectives. Accordingly, we assess the relation of macroprudential policy and competition to bank risk jointly from a sample of 1373 banks from 13 East Asian countries, using the latest IMF dataset of macroprudential policy from 1990 to 2018. Among our results, we have found that whereas macroprudential policies did commonly have a beneficial effect on risk at a bank level controlling for competition, there are a number of cases where policies were deleterious through increased risk. Notably in the developing and emerging East Asian countries and in the short term, the interactions between competition and macroprudential measures often show a lesser response in terms of risk reduction for banks with more market power, a form of “competition-stability”. We suggest that this links in turn to ability of such banks to undertake risk-shifting in response to macroprudential policy. On the other hand, we find for banks in advanced East Asian countries some tendency in the long term for banks facing intense competition to take relatively more risks in face of macroprudential measures, i.e. “competition fragility”. These findings provide important implications for regulators.
Description: Also available at SSRN: or
Other Identifiers: NIESR Discussion Paper No 533
ORCID iDs: Ka Kei Chan; E Philip Davis; Dilruba Karim
Appears in Collections:Dept of Economics and Finance Research Papers

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