Effect of External Support on Bank Default and Operating Risks: Does Country Strength Matter?

This study investigates how two forms of external support, namely, government and foreign ownership, affect bank default and operating risks. The results show, first, that government ownership reduces default risk and increases operating risk, while foreign ownership reduces both default and operating risks. Second, government ownership decreases default risk especially for banks from advanced countries and countries with better national governance. Third, foreign ownership from countries with better sovereign ratings decreases both default and operating risks. Our results suggest that Asian countries should increase income or national governance for more effective government support and open the domestic bank market.