Risk Taking by Banks in the Transition Countries
20 Pages Posted: 21 Dec 2006
There are 3 versions of this paper
Risk Taking by Banks in the Transition Countries
Risk Taking By Banks in the Transition Countries
Risk Taking by Banks in the Transition Countries
Date Written: December 19, 2006
Abstract
In this paper we examine risk taking and risk management with the help of a new survey data set from EBRD. We do so in this paper with the familiar balance sheet and income data prepared by Bank Scope and also with information from the EBRD's 2005 survey of bank managers. We find no indication of excessive risk taking by any specific group of transition banks. Overall banking markets in transition economies are relatively homogenous with only small differences among the average bank operating in different regions, belonging to different ownership groups or having a different size. Interestingly, we find no connection between the level of risk banks take and the institutional environment they operate in. Nevertheless, banks that operate in an unsound environment generally maintain a higher level of capital. Furthermore, banks with higher risk measures compared to their competitors also do more risk management activities. This suggests that banks in transition economies have learned how to manage their risks by now.
Keywords: banking risk, default probability, credit risk, transition banking
JEL Classification: F34, F37, G21, G28, G33, K39
Suggested Citation: Suggested Citation
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