Different Inflation Regimes and Their Impact on Bank Risk-Taking: Evidence from Brazil and South Korea

This study analyzes the impact of inflation on bank risk-taking behavior in two distinct economies, Brazil and South Korea. Since the effects of inflation on banks can vary according to the prevailing inflation regime, and given the countries’ contrasting histories of high and low inflation, Brazil and South Korea offer particularly compelling cases for comparative analysis. We conducted a panel data analysis using samples of banks from both countries spanning from March 2014 to March 2021. The results reveal that inflation tends to stimulate risk appetite in both countries. However, the comparative influence of inflation and monetary policy rates on banks’ risk-taking behavior varies between the two economies. In the South Korean case, monetary policy measures can attenuate the effects of inflation on financial stability, whereas, in Brazil, their efficacy seems to be less pronounced. Keywords: Inflation; Risk-taking; Banking; Brazil and South Korea