Bank market power, economic growth and financial stability: Evidence from Asian banks

Wahyoe Soedarmono (1) , Fouad Machrouh (2) , Amine Tarazi (3)

1 Universitas Siswa Bangsa Internasional, Faculty of Business / Sampoerna School of Business
2 Institut Supérieur de Commerce et d'Administration des Entreprises, Casablanca, Morocco
3 LAPE - Laboratoire d'Analyse et de Prospective Economique

This paper examines whether Asian banks are still prone to moral hazard in the aftermath of the 1997 Asian crisis. Using a sample of commercial banks from 12 Asian countries during the 2001-2007 period, our empirical findings highlight that higher market power in the banking market results in higher instability. Although banks are better capitalized in less competitive markets their default risk remains higher. A deeper investigation however shows that such a behaviour is dependent on the economic environment. Higher economic growth contributes to neutralize higher risk taking and higher instability in less competitive markets.

Mots clés: Market Power; Financial Fragility; Economic Growth; Asian Banks

Domaines: Economies et finances

Wahyoe Soedarmono, Fouad Machrouh, Amine Tarazi. Bank market power, economic growth and financial stability: Evidence from Asian banks. Journal of Asian Economics, 2011, 22, pp.460 - 470. ⟨10.1016/j.asieco.2011.08.003⟩. ⟨hal-01098998⟩