Competition and risk taking in local bank markets: evidence from the business loans segment

Chiara Canta (), Øivind Nilsen and Simen Ulsaker
Additional contact information
Chiara Canta: TBS Business School

No 10/2023, Discussion Paper Series in Economics from Norwegian School of Economics, Department of Economics

Abstract: This paper studies empirically the relationship between competition and risk taking in banking markets. We exploit an unique dataset providing information about all bank loans to Norwegian firms over several years. Rather than relying on observed market shares, we use the distance between bank branches and firms to measure the competitiveness of local markets. The cross-sectional and longitudinal variation in competition in local markets are used to identify the relationship between competition and risk taking, which we measure by the non-performing loans and loss provision rates of the individual banks. We find that more competition leads to more risk taking. We also examine the effects of bank competition on the availability of loans. More competition leads to lower interest rates and higher loan volumes, but also makes it more difficult for small and newly established firms to obtain a loan.

Keywords: Competition; risk (search for similar items in EconPapers)
JEL-codes: G21 L11 L13 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2023-05-18
New Economics Papers: this item is included in nep-ban, nep-com, nep-eur, nep-rmg and nep-ure
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https://hdl.handle.net/11250/3068429 Full text (application/pdf)

Related works:
Journal Article: Competition and risk taking in local bank markets: Evidence from the business loans segment (2023)
Working Paper: Competition and Risk Taking in Local Bank Markets: Evidence from the Business Loans Segment (2023)
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