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Journal of Financial Stability

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Journal of Financial Stability
Journal of Financial Stability 11 (2014) 32–48

Contents lists available at ScienceDirect

Journal of Financial Stability journal homepage: www.elsevier.com/locate/jfstabil

Financial liberalization and bank risk-taking: International evidence
Elena Cubillas a,∗ , Francisco González b a b

Department of Finance, CUNEF (Colegio Universitario de Estudios Financieros), Calle Serrano Anguita 9, 28004 Madrid, Spain
Department of Business Administration, University of Oviedo, Avenida del Cristo s/n, 33071 Oviedo, Spain

a r t i c l e

i n f o

Article history:
Received 25 April 2013
Received in revised form 18 August 2013
Accepted 7 November 2013
Available online 18 November 2013
JEL classification:
F36
G21
G28

a b s t r a c t
This paper analyzes the channels through which financial liberalization affects bank risk-taking in an international sample of 4333 banks in 83 countries. Our results indicate that financial liberalization increases bank risk-taking in both developed and developing countries but through different channels. Financial liberalization promotes stronger bank competition that increases risk-taking incentives in developed countries, whereas in developing countries it increases bank risk by expanding opportunities to take risk.
Capital requirements help reduce the negative impact of financial liberalization on financial stability in both developed and developing countries. However, official supervision and financial transparency are only effective in developing countries.
© 2013 Elsevier B.V. All rights reserved.

Keywords:
Financial liberalization
Bank risk-taking
Banking competition
Capital requirements
Supervision

1. Introduction
The literature on financial liberalization and growth generally concludes that liberalization strengthens financial development and contributes to higher long-run growth (Henry, 2000; Bekaert et al., 2005).1 But the main debate on financial liberalization focuses on its potential


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