Does Competition Affect Bank Risk?

Liangliang Jiang, Ross Levine () and Chen Lin

No 23080, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Although policymakers often discuss tradeoffs between bank competition and stability, past research provides differing theoretical perspectives and empirical results on the impact of competition on risk. In this paper, we employ a new approach for identifying exogenous changes in the competitive pressures facing individual banks and discover that an intensification of competition materially boosts bank risk. With respect to the mechanisms, we find that competition reduces bank profits, charter values, and relationship lending and increases banks’ provision of nontraditional banking services.

JEL-codes: G21 G28 G32 L1 (search for similar items in EconPapers)
Date: 2017-01
New Economics Papers: this item is included in nep-ban, nep-com, nep-eff and nep-rmg
Note: CF IO
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Citations: View citations in EconPapers (23)

Published as Liangliang Jiang & Ross Levine & Chen Lin, 2023. "Does Competition Affect Bank Risk?," Journal of Money, Credit and Banking, vol 55(5), pages 1043-1076.

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