Competition and financial stability

Franklin Allen and Douglas Gale ()

Proceedings, 2004, 453-486

Abstract: Competition policy in the banking sector is complicated by the necessity of maintaining financial stability. Greater competition may be good for (static) efficiency, but bad for financial stability. From the point of view of welfare economics, the relevant question is: what are the efficient levels of competition and financial stability? We use a variety of models to address this question and find that different models provide different answers. The relationship between competition and stability is complex: sometimes competition increases stability.

Keywords: Financial crises; Bank competition (search for similar items in EconPapers)
Date: 2004
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