Prudence as a competitive advantage: On the effects of competition on banks' risk-taking incentives

Roman Inderst

European Economic Review, 2013, vol. 60, issue C, 127-143

Abstract: This paper builds on the notion that corporate borrowers care about the overall riskiness of a bank's operations as their continued access to credit may depend on the bank's ability to roll over loans or to expand existing credit facilities. A key implication of this observation is that increasing competition among banks should have an asymmetric impact on banks' incentives to take on risk: Banks that are already riskier will take on yet more risk, while their safer rivals will become even more prudent.

Keywords: G21; Keywords:; Banking; Risk taking (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:60:y:2013:i:c:p:127-143

DOI: 10.1016/j.euroecorev.2012.10.001

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