BANK COMPETITION AND FINANCIAL STABILITY: LIQUIDITY RISK PERSPECTIVE
Contemporary Economic Policy, 2018, vol. 36, issue 2, 337-362
We study whether competition affects banks' liquidity riskâ€ taking, which was at the heart of the 2008 financial crisis. We find that banks with greater market power take more liquidity risk, implying that decreased competition leads to financial fragility. During a financial crisis, however, the effect of market power on liquidity risk varies across bank size. Small banks with greater market power reduce liquidity risk while large banks with greater market power do not change their liquidity riskâ€ taking behavior. This suggests that enhanced charter values due to reduced competition lowers small banks' riskâ€ shifting incentives when their default risk significantly increases during a crisis. (JEL G21, G28)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bla:coecpo:v:36:y:2018:i:2:p:337-362
Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1074-3529
Access Statistics for this article
Contemporary Economic Policy is currently edited by Brad R. Humphreys
More articles in Contemporary Economic Policy from Western Economic Association International Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().