Global banking: Endogenous competition and risk taking

Ester Faia, Sébastien Laffitte, Maximilian Mayer and Gianmarco Ottaviano

European Economic Review, 2021, vol. 133, issue C

Abstract: When banks expand abroad, their riskiness decreases if foreign expansion happens in destination countries that are more competitive than their origin countries. We reach this conclusion in three steps. First, we develop a flexible dynamic model of global banking with endogenous competition and endogenous risk-taking. Second, we calibrate and simulate the model to generate empirically relevant predictions. Third, we validate these predictions by testing them on an original dataset covering the activities of the 15 European global systemically important banks (G-SIBs). Our results hold across alternative measures of individual and systemic bank risk.

Keywords: Global bank; Oligopoly; Oligopsony; Competition; Endogenous risk taking (search for similar items in EconPapers)
JEL-codes: G21 G32 L13 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Global Banking: Endogenous Competition and Risk Taking (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:133:y:2021:i:c:s0014292121000143

DOI: 10.1016/j.euroecorev.2021.103661

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