Codependence And Bank Risk Taking

After the 2008 financial crisis,direct or indirect links within the banking system have gradually attracted the attention of academia and regulators.The natural links between banking systems have taught the world a painful lesson in the past and provides a research object for future self-discipline and regulation.The correlation between banks results in codependence.The simple and understandable explanation of codependence is the degree of interaction among different banks.If a system has a high degree of codependence,it shows that the individual banks within the system have greater influence on each other.Codependence has both positive and negative effects on individual banks and the financial system.First of all,the higher the degree of codependence,the more security and convenience it can bring to the individual bank.In a system with high codependence,banks are more likely to get crisis relief from the government and liquidity support from other banks,which improves the survival probability of banks in the face of risk shocks.In addition,banks can achieve more effective risk diversification and more investment opportunities,which will help banks to operate steadily in their daily operations and improve their profitability.But there are also some negative effects in the banking system with high codependence.When risk shocks come,higher codependence will lead to asset sell price drops,credit crisis,liquidity tightening and other issues,which will make the initial risk and crisis spread quickly and widely in the system,and eventually lead to crisis.Unlike previous literature,which focused on the impact of interbank linkages on the objective risk situation of the system,this paper attempts to study the risk-taking behavior of individual banks.In addition,this paper studies the macroeconomic factors and bank characteristics that may affect the relationship between codependence and risk-taking.This paper is divided into six parts.The first part is the introduction.The second part is literature review.The third part is theoretical research.This part analyses the two opposite effects of codependence and the changes of bank's risk attitude,and puts forward the conjecture that there is a positive relationship between codependence and risk taking.The fourth part is empirical model setting.The fifth part is the analysis of empirical results.The sixth part is conclusion and suggestion.Combined with theoretical analysis and empirical research results,this part gives the final conclusions and policy recommendations.By analyzing the data of more than 1,000 commercial banks in 38 emerging economies from 2000 to 2014,this paper leads to the following conclusions:(1)There is a positive relationship between codependence and risk taking.(2)There are macroeconomic factors that affect the relationship between codependence and risk-taking: GDP growth rate,inflation rate and monetary policy.There are bank characteristics that affect the relationship between codependence and risk-taking: liquidity,efficiency and ownership structure.