The impact of monetary policy and bank competition on banking industry risk: A default analysis
In the financial system and economy, the banking industry plays a crucial role. Default risk takes central stage in preserving financial stability and needs to be mitigated as it can trigger a crisis. The study examines the combined effects of monetary policy and bank competition on banking defaults...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
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LLC "CPC "Business Perspectives"
2021-04-01
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| Series: | Banks and Bank Systems |
| Subjects: | |
| Online Access: | https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/14899/BBS_2021_01_Ayomi.pdf |
| _version_ | 1819052396104384512 |
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| author | Sri Ayomi Eleonora Sofilda Muhammad Zilal Hamzah Ari Mulianta Ginting |
| author_facet | Sri Ayomi Eleonora Sofilda Muhammad Zilal Hamzah Ari Mulianta Ginting |
| author_sort | Sri Ayomi |
| collection | DOAJ |
| description | In the financial system and economy, the banking industry plays a crucial role. Default risk takes central stage in preserving financial stability and needs to be mitigated as it can trigger a crisis. The study examines the combined effects of monetary policy and bank competition on banking defaults. Using a sample of 95 commercial banks in Indonesia between 2009 and 2019, this study employs the Generalized Method of Moments, a two-step dynamic panel-data estimation system, to analyze it. Empirical estimation results show that monetary policy, through an increase in the benchmark interest rate, negatively affects probability of default. The extent of banking stability is also enhanced by monetary policy. Banking competition has a negative and significant effect on probability of default and has a positive effect on the banking distance to default. Furthermore, the combined impact of monetary policy and banking competition positively affects probability of default but has a negative impact on the distance of default. Building on this study, to promote a stable and more efficient banking system, policymakers should develop policies that foster complementary monetary and competition policies. |
| first_indexed | 2024-12-21T12:19:10Z |
| format | Article |
| id | doaj.art-231d54300fd54396b917697bb5d28241 |
| institution | Directory Open Access Journal |
| issn | 1816-7403 1991-7074 |
| language | English |
| last_indexed | 2024-12-21T12:19:10Z |
| publishDate | 2021-04-01 |
| publisher | LLC "CPC "Business Perspectives" |
| record_format | Article |
| series | Banks and Bank Systems |
| spelling | doaj.art-231d54300fd54396b917697bb5d282412022-12-21T19:04:21ZengLLC "CPC "Business Perspectives"Banks and Bank Systems1816-74031991-70742021-04-0116120521510.21511/bbs.16(1).2021.1814899The impact of monetary policy and bank competition on banking industry risk: A default analysisSri Ayomi0Eleonora Sofilda1https://orcid.org/0000-0002-5105-8208Muhammad Zilal Hamzah2https://orcid.org/0000-0001-6546-4736Ari Mulianta Ginting3https://orcid.org/0000-0002-2751-1199Doctor, Researcher, Indonesian Financial Services Authority (OJK), Doctoral Program in Economics, Faculty of Economics and Business, Trisakti UniversityPh.D., Lecturer in Doctoral Program in Economics, Faculty of Economics and Business, Trisakti UniversityPh.D., Lecturer in Doctoral Program in Economics, Faculty of Economics and Business, Trisakti UniversityDoctor, Researcher in Research Center, Secretary-General of the House of Representatives of the Republic of IndonesiaIn the financial system and economy, the banking industry plays a crucial role. Default risk takes central stage in preserving financial stability and needs to be mitigated as it can trigger a crisis. The study examines the combined effects of monetary policy and bank competition on banking defaults. Using a sample of 95 commercial banks in Indonesia between 2009 and 2019, this study employs the Generalized Method of Moments, a two-step dynamic panel-data estimation system, to analyze it. Empirical estimation results show that monetary policy, through an increase in the benchmark interest rate, negatively affects probability of default. The extent of banking stability is also enhanced by monetary policy. Banking competition has a negative and significant effect on probability of default and has a positive effect on the banking distance to default. Furthermore, the combined impact of monetary policy and banking competition positively affects probability of default but has a negative impact on the distance of default. Building on this study, to promote a stable and more efficient banking system, policymakers should develop policies that foster complementary monetary and competition policies.https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/14899/BBS_2021_01_Ayomi.pdfbanking competitionbanking riskdynamic panel data methodmonetary policy |
| spellingShingle | Sri Ayomi Eleonora Sofilda Muhammad Zilal Hamzah Ari Mulianta Ginting The impact of monetary policy and bank competition on banking industry risk: A default analysis Banks and Bank Systems banking competition banking risk dynamic panel data method monetary policy |
| title | The impact of monetary policy and bank competition on banking industry risk: A default analysis |
| title_full | The impact of monetary policy and bank competition on banking industry risk: A default analysis |
| title_fullStr | The impact of monetary policy and bank competition on banking industry risk: A default analysis |
| title_full_unstemmed | The impact of monetary policy and bank competition on banking industry risk: A default analysis |
| title_short | The impact of monetary policy and bank competition on banking industry risk: A default analysis |
| title_sort | impact of monetary policy and bank competition on banking industry risk a default analysis |
| topic | banking competition banking risk dynamic panel data method monetary policy |
| url | https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/14899/BBS_2021_01_Ayomi.pdf |
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