Banking Competition and Stability: The Role of Leverage

Kebin Ma and Xavier Freixas ()

No 781, Working Papers from Barcelona School of Economics

Abstract: This paper re-examines the classical issue of the possible trade-off s between banking competition and financial stability by highlighting different types of risk and the role of leverage. We show that competition can affect portfolio risk, insolvency risk, liquidity risk, and systemic risk differently. The effect depends crucially on a bank's type of funding (retail deposits vs. wholesale debts) and whether leverage is exogenous or endogenous. In particular, we argue that while competition might increase financial stability in a classical originate-to-hold banking industry, the opposite can be true for an originate-to-distribute banking industry with a large fraction of market short-term funding.

Keywords: financial stability; banking competition; leverage (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-com
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://bw.bse.eu/wp-content/uploads/2015/09/781-file.pdf (application/pdf)

Related works:
Working Paper: Banking Competition and Stability: The Role of Leverage (2014)
Working Paper: Banking Competition and Stability: The Role of Leverage (2014)
Working Paper: Banking competition and stability: The role of leverage (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:781

Access Statistics for this paper

More papers in Working Papers from Barcelona School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().