This paper examines the relationship between bank capital inflows and financial stability. Using a sample of publicly-traded commercial banks in Asia over the 2002-2008 period, our empirical results show that higher banking inflows measured by the share of foreign liabilities in banking reduces systematic risk, but increases bank-specific risk and total risk. A deeper investigation further suggests that an increase in total risk and bank-specific risk is driven by strong institutional development. Specifically, higher foreign liabilities in banking exacerbate bank-specific risk and total risk in countries with greater economic freedom. Hence, the reinforcement of prudential regulations is necessary to overcome bank-specific risk and total risk, particularly when the countries move to a more liberal economic environment.
"BANK CAPITAL INFLOWS, INSTITUTIONAL DEVELOPMENT AND RISK: EVIDENCE FROM PUBLICLY - TRADED BANKS IN ASIA,"
Bulletin of Monetary Economics and Banking: Vol. 14:
2, Article 3.
Available at: https://bulletin.bmeb-bi.org/bmeb/vol14/iss2/3