Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/98916 
Authors: 
Year of Publication: 
2014
Series/Report no.: 
Tinbergen Institute Discussion Paper No. 14-059/IV
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
This article presents a model in which, contrary to conventional wisdom, competi- tion can make banks more reluctant to take excessive risks: As competition intensifies and margins decline, banks face more-binding threats of failure, to which they may respond by reducing their risk-taking. Yet, at the same time, banks become riskier. This is because the direct, destabilizing effect of lower margins outweighs the disciplining effect of competition; moreover, a substantial rise in competition reduces banksÂ’ incentive to build precautionary capital buffers. A key implication is that the effects of competition on risk-taking and on failure risk can move in opposite directions.
Subjects: 
Charter Value Hypothesis
Bank Franchise Value
Bank Competition
Financial Stability
Capital Requirements
JEL: 
G2
G3
Document Type: 
Working Paper

Files in This Item:
File
Size
423.62 kB





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