Competition and bank stability

Martin Goetz

No 559, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: Does an increase in competition increase or decrease bank stability? I exploit how the state-specific process of interstate banking deregulation lowered barriers to entry into urban banking markets and find that greater competition significantly increases bank stability. This result is robust to the inclusion of additional fixed effects and other influences, such as merger and acquisitions or diversification. Moreover, I find that greater competition reduces banks' nonperforming loans and increases bank profitability. These findings suggest that competition increases stability as it improves bank profitability and asset quality.

Keywords: Risk; Stability; Competition; Contestability; Entry; Bank Deregulation; Lending (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-com and nep-ind
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:559

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