Competition and Stability in Banking

Xavier Vives

Journal Economía Chilena (The Chilean Economy), 2010, vol. 13, issue 2, 85-112

Abstract: In this paper, 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 thus the probability of failure. The competition-stability trade-off is characterized and the implications of the analysis for regulation and competition policy discussed. Optimal regulation may depend on the intensity of competition.

Date: 2010
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Related works:
Chapter: Competition and Stability in Banking (2011)
Working Paper: Competition and Stability in Banking (2010)
Working Paper: Competition and Stability in Banking (2010)
Working Paper: Competition and stability in banking (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchec:v:13:y:2010:i:2:p:85-112

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