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

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  • Inderst, Roman

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.

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File URL: http://www.sciencedirect.com/science/article/pii/S001429211200133X
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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 60 (2013)
Issue (Month): C ()
Pages: 127-143

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Handle: RePEc:eee:eecrev:v:60:y:2013:i:c:p:127-143

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Web page: http://www.elsevier.com/locate/eer

Related research

Keywords: G21; Keywords:; Banking; Risk taking;

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References

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  18. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
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