Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/46486 
Year of Publication: 
2010
Series/Report no.: 
CESifo Working Paper No. 3198
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This study is an empirical investigation of theoretical predictions concerning the impact of bank competition on bank risk and asset allocations. Recent work (Boyd, De Nicolò and Jalal, 2009, BDNJ henceforth) predicts that as competition in banking increases, the loan-to-asset ratio will rise (under reasonable assumptions), but the probability of bank failure can either increase or decrease. However, the probability of bank failure will fall if and only if borrowers' response to take on less risk as loan rates decline is sufficiently strong. We test these predictions using two samples with radically different attributes. With both, we find that banks' probability of failure is negatively and significantly related to measures of competition. We also find that as competition intensifies, borrower risk decreases and the loan-to-asset ratio increases. These results are consistent with the predictions of the BDNJ model.
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size
536.77 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.