Market power and risk taking behavior of banks
AbstractWe 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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Bibliographic InfoArticle provided by El Colegio de México, Centro de Estudios Económicos in its journal Estudios Económicos.
Volume (Year): 21 (2006)
Issue (Month): 1 ()
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El Colegio de México, Centro de Estudios Económicos, vol. 23(1), pages 49-87.
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