Regulatory and Institutional Determinants of Credit Risk Taking and Bank's Default in Emerging Market Economies: A Two Step Approach

Journal of Emerging Market Finance, Vol. 5, No. 2, 2006

43 Pages Posted: 26 Jul 2007

See all articles by Christophe J. Godlewski

Christophe J. Godlewski

University of Strasbourg - Faculty of Law and Business; EM Strasbourg Business School; LaRGE Research Center

Abstract

Regulatory and institutional environment is not without effect on bank's risk taking and therefore on bank's default. In this article, we investigate regulatory and institutional determinants of credit risk taking and bank's default probability in emerging market economies. Using a two step logit model applied to a database of banks from emerging economies, we confirm the role of the institutional and regulatory environment as a source of excess credit risk, which increases bank's default risk. In particular, the rule of law appears to be a crucial element of an efficient regulatory environment, which may reduce excessive risk taking incentives.

Keywords: Regulatory and institutional determinants, bank's default, credit risk, emerging market economies, two step logit model

JEL Classification: C35, G21, G28

Suggested Citation

Godlewski, Christophe J., Regulatory and Institutional Determinants of Credit Risk Taking and Bank's Default in Emerging Market Economies: A Two Step Approach. Journal of Emerging Market Finance, Vol. 5, No. 2, 2006. Available at SSRN: https://ssrn.com/abstract=1001406

Christophe J. Godlewski (Contact Author)

University of Strasbourg - Faculty of Law and Business ( email )

1 place d'Athènes
Strasbourg, 67000
France

HOME PAGE: http://droit.unistra.fr/

EM Strasbourg Business School ( email )

61 Avenue de la Forêt Noire
Strasbourg, 67000
France

HOME PAGE: http://www.em-strasbourg.eu/

LaRGE Research Center ( email )

1 place d'Athènes
Strasbourg, 67000
France

HOME PAGE: http://droit.unistra.fr/

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