Do bank activities and funding strategies of foreign and state‐owned banks have a differential effect on risk‐taking in Central and Eastern Europe?

Abstract

This paper explores the differential effects of the activity and funding strategies of foreign and state‐owned banks in Central and Eastern European countries on risk‐taking. Due to potentially beneficial external support, the disciplinary role of non‐deposit funding is completely ineffective for both foreign and state‐owned banks. Most likely, because of survival beliefs, non‐deposit financiers deposit their money even when state‐owned banks become riskier. Involvement in non‐interest‐income activities has no impact on the risk‐taking of foreign banks and worsens the risk of state‐owned institutions. However, both types of banks are risky when involved in trading, insurance income, rental and other non‐banking businesses.

Bank risk, competition and bank connectedness with firms: A literature review

“…Even structural and institutional factors like national culture values and trust (Mourouzidou-Damtsa et al, 2017) as well financial integration impact the risk-taking of banks. The risk profile of banks is also different according to their ownership, foreign banks being generally less risky than their counterparts (Chen et al, 2017a, Lapteacru 2018. Moreover, Wu et al (2017) argue that the presence of foreign banks fosters the risk of domestic banking institutions.…”