Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/39006
Authors: 
Vives, Xavier
Year of Publication: 
2010
Series/Report no.: 
CESifo working paper Trade Policy 3050
Abstract: 
I review the state of the art of the academic theoretical and empirical literature on the potential trade-off between competition and stability in banking. There are two basic channels through which competition may increase instability: by exacerbating the coordination problem of depositors/investors on the liability side and fostering runs/panics, and by increasing incentives to take risk and raise failure probabilities. The competition-stability trade-off is characterized and the implications of the analysis for regulation and competition policy are derived. It is found that optimal regulation may depend on the intensity of competition.
Subjects: 
antitrust
regulation
crisis
risk-taking
mergers
state aid
bail-outs
JEL: 
G21
G28
L40
Document Type: 
Working Paper

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