Financial Markets Development, Business Cycles, and Bank Risk in South America

Research in International Business and Finance, Vol. 36, 2016, pp. 472-484.

53 Pages Posted: 13 Jun 2015 Last revised: 15 Dec 2015

See all articles by Chaiporn Vithessonthi

Chaiporn Vithessonthi

Sunway University

Jittima Tongurai

Graduate School of Business Administration, Kobe University

Date Written: May 2, 2015

Abstract

In this paper, we examine whether banking crises or business cycles affect the influence of financial markets development on bank risk in a sample of 37 publicly listed commercial banks in seven South American countries over a 22-year period between 1991 and 2012. Banking crises in this region offer a natural setting in which the impact of financial markets development on bank risk is examined. We find that financial markets development improves banks’ capitalization ratio and reduces their exposure to non-traditional banking activities, suggesting that financial markets development on average reduces bank risk. In addition, banking crises and business cycles appear to moderate the impact of financial markets development on bank risk. In the aftermath of banking crises, banks appear to concentrate more on their core traditional banking activities.

Keywords: capitalization; banking crisis; bank risk; financial markets development; South America

JEL Classification: G15, G21, G32, O16

Suggested Citation

Vithessonthi, Chaiporn and Tongurai, Jittima, Financial Markets Development, Business Cycles, and Bank Risk in South America (May 2, 2015). Research in International Business and Finance, Vol. 36, 2016, pp. 472-484., Available at SSRN: https://ssrn.com/abstract=2617974 or http://dx.doi.org/10.2139/ssrn.2617974

Chaiporn Vithessonthi (Contact Author)

Sunway University ( email )

No. 5, Jalan Universiti
Bandar Sunway, Selangor Darul Ehsan 47500
Malaysia
+60 3 7491 8622 (Phone)
+60 3 5635 8633 (Fax)

Jittima Tongurai

Graduate School of Business Administration, Kobe University ( email )

School of Business Administration
2-1 Rokkodai, Nada
Kobe, Hyogo 6578501
Japan
81 78 803 6941 (Phone)
81 78 803 6941 (Fax)

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