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Systemic risk and competition revisited

Silva-Buston, Consuelo

Journal of Banking & Finance, 2019, vol. 101, issue C, 188-205

Abstract: This paper revisits the mechanism behind the relation between bank competition and systemic risk. I decompose this risk into a component driven by banks’ commonality with the market and a component arising from other sources of interbank commonality. I show that competition is negatively related to the latter. This relationship is stronger for more informationally opaque banks, financed with a larger share of uninsured sources and in countries with lower deposit insurance coverage. The findings are consistent with herding incentives at banks when competition is low.

Keywords: Systemic risk; Interbank correlation; Diversification; Competition (search for similar items in EconPapers)
JEL-codes: G1 G2 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:jbfina:v:101:y:2019:i:c:p:188-205