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Market power and risk taking behavior of banks

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Author Info

  • Kaniska Dam

    (Université Catholique de Louvain)

  • Susana Wendy Zendejas Castillo

    (Université Catholique de Louvain)

Abstract

We consider a monopolistically competitive banking sector in order to analyze the effects of market concentration on the risk-taking behavior of banks. We show that, under full deposit insurance, a higher level of competition induces banks to invest in a risky asset. When the market concentration is high banks tend to take less risk. We also show that maximum social welfare is achieved either through free entry or through entry restriction.

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File URL: http://codex.colmex.mx:8991/exlibris/aleph/a18_1/apache_media/VXHNYG5CN27RT9MIKKHBNDX4JFBL4C.pdf
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Bibliographic Info

Article provided by El Colegio de México, Centro de Estudios Económicos in its journal Estudios Económicos.

Volume (Year): 21 (2006)
Issue (Month): 1 ()
Pages: 55-84

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Handle: RePEc:emx:esteco:v:21:y:2006:i:1:p:55-84

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Web page: http://www.colmex.mx/centros/cee/
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  1. Perotti, Enrico C. & Suarez, Javier, 2002. "Last bank standing: What do I gain if you fail?," European Economic Review, Elsevier, vol. 46(9), pages 1599-1622, October.
  2. Matutes, Carmen & Vives, Xavier, 1996. "Competition for Deposits, Fragility, and Insurance," Journal of Financial Intermediation, Elsevier, vol. 5(2), pages 184-216, April.
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Cited by:
  1. Antonio Ruiz-Porras, 2008. "Banking Competition and Financial Fragility: Evidence from Panel-Data," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 23(1), pages 49-87.
  2. HAKIMI Abdelaziz & Ahmet DKHILI Hichem & KHLAIFIA Wafa, 2012. "Universal Banking and Credit Risk: Evidence from Tunisia," International Journal of Economics and Financial Issues, Econjournals, vol. 2(4), pages 496-504.

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