Capital Flows and Bank Risk-Taking Behavior: Evidence From Indonesia

Bayront Yudit Rumondor; Pakasa Bary

doi:10.2478/jcbtp-2020-0022

Abstract

This paper investigates the impact of capital flows on bank risk-taking behavior. It undertakes two levels of empirical estimations, namely (i) single-country industry-level; and (ii) multi-country industry-level estimations, covering emerging market economies. The results suggest that capital inflows, in the form of portfolio investment, is significant in raising risk-taking behavior. Large banks are less aggressive in their risk-taking behavior vis-à-vis smaller banks. Such impact of portfolio investment on risk-taking behavior is also shown in the multi-country level estimates.

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Capital Flows and Bank Risk-Taking Behavior: Evidence From Indonesia

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