Bank capital and credit risk taking in emerging market economies

What is it about?

The primary purpose of this paper is to investigate the relationship between bank capital and credit risk taking in emerging market economies. It also investigates the influence of several regulatory, institutional and legal features on the relationship between risk and capital. The paper applies a simultaneous equations framework following Shrieves and Dahl (1992) and Jacques and Nigro (1997). The results corroborate the existing findings for US and other industrial economies, putting forward the impact of capital regulation on banks' behaviour. The paper also shows empirical evidence on the role of the regulatory, institutional and legal environment in driving bank capitalisation and credit risk-taking behaviour in emerging market economies.

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