The Role of Regulatory, Legal and Institutional Environments in Bank Default: The Case of Emerging Market Economies
Banque & Marches, Vol. 73, November-December 2004
22 Pages Posted: 15 Sep 2004
This article investigates the impact of institutional and regulatory factors on banks' default in emerging market economies. Few studies have investigated bank default in these economies. Although, the quality of institutions which determine investors' protection and bank regulation's efficiency can condition the level of risk taking and, therefore, affects the probability of banks' default. We model the latter using a two step logit model applied to a sample of banks from emerging market economies. The results confirm the role of the institutional and regulatory environment in controlling the incentives for excess credit risk taking. Particularly, the rule of law appears to be a crucial element for a credible and efficient regulation.
Note: Downloadable document is in French.
Keywords: Excess credit risk, bank default, emerging market economies, institutional and regulatory factors, two step logit model
JEL Classification: C35, G21, G28
Suggested Citation: Suggested Citation