Journal of Financial Stability
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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
Received 25 April 2013
Received in revised form 18 August 2013
Accepted 7 November 2013
Available online 18 November 2013
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.
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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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