A Comparative Study of the Influence of Derivatives on Bank Stability in Emerging and Recently Developed Countries: Evidence from the Last Financial Crisis

Abstract

The major objective of this study is to inspect the differences in the effect of derivatives on the stability between banks from emerging countries and those from recently developed countries.

According to the repercussions of the recent financial crisis, we divide the whole period into normal period “the pre-crisis period,” 2003–2006, and turbulent period “the crisis & post-crisis period,” 2007–2011. We use the Generalized Methods of Moments (GMM) estimator technique developed by Blundell and Bond (1998) to estimate our regressions.

Our main conclusions show that, in general, using derivatives by banks from emerging countries deteriorates their stability especially during the turbulent period, whereas, using derivatives do not weaken the stability of banks from recently developed countries. We deduce that banks from emerging countries are more destabilized by using derivatives than banks from recently developed countries.

Citation

Keffala, M.R. (2016), "A Comparative Study of the Influence of Derivatives on Bank Stability in Emerging and Recently Developed Countries: Evidence from the Last Financial Crisis", The Spread of Financial Sophistication through Emerging Markets Worldwide (Research in Finance, Vol. 32), Emerald Group Publishing Limited, Leeds, pp. 165-183. https://doi.org/10.1108/S0196-382120160000032007