The Influence of Institutional Factors on Excess Risk and Bank Ratings in Emerging Market Economies

21 Pages Posted: 14 Sep 2004

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

Multiple version iconThere are 2 versions of this paper

Date Written: January 2004

Abstract

The regulatory and institutional environment may influence bank risk taking behavior, especially in emerging market economies. The resulting excess risk may hamper bank stability. This article investigates the influence of institutional factors on bank's excess risk and ratings, particularly Moody's Bank Financial Strength Rating (BFSR). Following the results of Poon et al. (1999) ("A Multivariate Analysis of the Determinants of Moody's Bank Financial Strength Ratings", Journal of International Financial Markets, Institutions and Money 9, pp. 267-283), we apply a two-step ordered logit model to a sample of rated banks in emerging markets. This methodology allows to distinguish the influence of the environment on excess risk from the impact of excess risk on the rating's quality. We find that this type of environment affects the quality of the rating, particularly the quality of the institutions, which influences the efficiency and the credibility of regulatory discipline and prudential supervision.

Keywords: Bank ratings, regulatory and institutional environment, emerging market economies, two step ordered logit model

JEL Classification: C35, G21, G28

Suggested Citation

Godlewski, Christophe J., The Influence of Institutional Factors on Excess Risk and Bank Ratings in Emerging Market Economies (January 2004). Available at SSRN: https://ssrn.com/abstract=588166 or http://dx.doi.org/10.2139/ssrn.588166

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/

Register to save articles to
your library

Register

Paper statistics

Downloads
215
Abstract Views
1,419
rank
79,210
PlumX Metrics