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Credit Information Sharing in the Nexus between Charter Value and Systemic Risk in Asian Banking

Toto Rusmanto (1), Wahyoe Soedarmono (2), Amine Tarazic (3)

(1) Accounting Department, Faculty of Economics and Communication, Bina Nusantara University, Jakarta, 11480, Indonesia
(2) Faculty of Business, Sampoerna University, Jakarta, 12780, Indonesia
(3) Université de Limoges, LAPE, 5 Rue Félix Eboué BP 3127, 87031 Limoges Cedex, France

In this paper, we assess whether the link between charter value and systemic risk in banking is affected by credit information sharing at the country level. Using a sample of Asian listed banks, we document that banks with higher charter value exhibit lower systemic risk because these banks hold more capital. Nevertheless, we find that the self-disciplining role of charter value in banking is more pronounced for countries with lower depth of credit information sharing. Specifically, our findings also reveal that higher charter value alleviates systemic risk and increases capitalization, particularly in countries with lower quality of private credit bureaus. These findings suggest that higher charter value can be detrimental for financial stability due to an increase in bank systemic risk, particularly when private credit bureaus are of better quality. In order to overcome bank systemic risk, this paper advocates the importance of strengthening bank competition to limit charter value, in addition to promoting the development of private credit bureaus.

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https://doi.org/10.1016/j.ribaf.2020.101199
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