1. bookVolume 16 (2021): Issue 3 (December 2021)
Journal Details
First Published
06 Mar 2015
Publication timeframe
3 times per year
access type Open Access

Impact of Investment, Financial and Trade Freedom on Bank’s Risk-Taking

Published Online: 24 Jan 2022
Volume & Issue: Volume 16 (2021) - Issue 3 (December 2021)
Page range: 5 - 23
Journal Details
First Published
06 Mar 2015
Publication timeframe
3 times per year

This study explores the impact of investment, financial, and trade freedom on banks' risk-taking and stability of US banks by employing two-step system GMM approach over the extended period from 2002 to 2018. The findings provide evidence that financial freedom decreases risk-taking, while investment and trade freedom increase US larger banks' risk-taking. The results show that investment and trade freedom is beneficial for the stability of banks in the US. The heterogeneity in results indicates that financial freedom reduces the risk-taking, whereas trade and investment freedom increase the risk-taking of well-capitalized and high liquid banks. In contrast, in the case of undercapitalized and low liquid banks, the impact of financial, trade, and investment freedom on risk-taking is insignificant. The result demonstrates that the government's intervention is decisive in developing the degree of economic freedom for the financial system's stability. The finding of the study has practical implications for banks manager, regulators, and policymakers.


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