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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: 26-Dec-2023
Publisher: Palgrave Macmillan (part of Springer Nature)
Citation: Chan, K.K., Davis, E.P. and Karim, D. (2023) 'Macroprudential Policy, Bank Competition And Bank Risk In East Asia', Journal of Banking Regulation, 0 (ahead of print), pp. 1 - 33. doi: 10.1057/s41261-023-00230-x.
Abstract: Copyright © The Author(s) 2023. We assess the relation of macroprudential policy and competition to bank risk for a sample of 1373 banks from 13 East Asian countries, using the IMF iMaPP dataset of macroprudential policy from 1990 to 2018. To our knowledge, this is the first paper to include both macroprudential policy and individual bank market power, as well as their interaction, as determinants of bank risk. On the one hand, we find direct effects of both macroprudential policy and competition on risk, in line with the existing literature. On the other hand, we detect important interaction effects. Notably in the developing and emerging East Asian countries, the interactions between competition and macroprudential measures often show a lesser response to such measures in terms of risk reduction for banks with more market power. We suggest that this links in turn to ability of such banks to undertake risk-shifting in response to macroprudential policy. We also find for banks in advanced East Asian countries—and in wider samples—some tendency in the long term for banks facing intense competition to take relatively more risks in face of macroprudential measures, in line with the traditional “franchise value” view of bank competition and risk taking. These findings have important implications for regulators.
Description: JEL Classification: E44, E58, G17, G28.
Data and descriptive statistics are available online at: .
ISSN: 1465-4830
Other Identifiers: ORCID iD: Ka Kei Chan
ORCID iD: E Philip Davis
ORCID iD: Dilruba Karim
Appears in Collections:Dept of Economics and Finance Research Papers

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