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The Relationship Between Banking Market Competition and Risk-taking: Do Size and Capitalization Matter?

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  • Benjamin M. Tabak
  • Dimas M. Fazio
  • Daniel O. Cajueiro

Abstract

This paper aims to study the effect of banking competition on Latin American banks' risk-taking and whether capitalization and size changes this relationship. We conclude that: (1) competition affects risk in a non-linear manner: high/low (average) competition are related to more (less) stability; (2) bank's size explains the advantage from competition, while capitalization is only positive for larger banks in this case; (3) capital ratio explains the advantage from lower competition. These results are of uttermost importance for bank regulation, especially due to the recent turmoil in worldwide financial markets.

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Bibliographic Info

Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 261.

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Date of creation: Nov 2011
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Handle: RePEc:bcb:wpaper:261

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Cited by:
  1. Olszak, Małgorzata & Świtała, Filip & Kowalska, Iwona, 2013. "Competition in commercial banks in Poland – analysis of Panzar-Rosse H-statistics," MPRA Paper 53782, University Library of Munich, Germany.
  2. Bing Xu & Adrian van Rixtel & Michiel van Leuvensteijn, 2014. "Measuring bank competition in China: A comparison of new versus conventional approaches applied to loan markets," Banco de Espa�a Working Papers 1404, Banco de Espa�a.
  3. Angelo Marsiglia Fasolo, 2012. "A Note on Particle Filters Applied to DSGE Models," Working Papers Series 281, Central Bank of Brazil, Research Department.
  4. Waldyr Areosa & Marta Areosa, 2012. "Information (in) Chains: information transmission through production chains," Working Papers Series 286, Central Bank of Brazil, Research Department.
  5. Tabak, Benjamin M. & Fazio, Dimas M. & Cajueiro, Daniel O., 2013. "Systemically important banks and financial stability: The case of Latin America," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3855-3866.
  6. Craig, B.R. & Dinger, V., 2010. "Deposit Market Competition, Wholesale Funding, and Bank Risk," Discussion Paper 2010-65S, Tilburg University, Center for Economic Research.
  7. Jeon, Jin Q. & Lim, Kwang Kyu, 2013. "Bank competition and financial stability: A comparison of commercial banks and mutual savings banks in Korea," Pacific-Basin Finance Journal, Elsevier, vol. 25(C), pages 253-272.
  8. Ornelas, Jose Renato Haas & Barbachan, José Fajardo & Farias, Aquiles Rocha de, 2012. "Estimating Relative Risk Aversion, Risk-Neutral and Real-World Densities using Brazilian Real Currency Options," EBAPE Working Papers 1, School of Public and Business Administration, Getulio Vargas Foundation (Brazil).
  9. Bruno Martins, 2012. "Local Market Structure and Bank Competition: evidence from the Brazilian auto loan market," Working Papers Series 299, Central Bank of Brazil, Research Department.
  10. Benjamin Miranda Tabak & Guilherme Maia Rodrigues Gomes & Maurício da Silva Medeiros Júnior, 2012. "The Impact of Market Power at Bank Level in Risk-taking: the Brazilian case," Working Papers Series 283, Central Bank of Brazil, Research Department.
  11. John Goddard & Phil Molyneux & Jonathan Williams, 2013. "Dealing with Cross-Firm Heterogeneity in Bank Efficiency Estimates: Some evidence from Latin America," Working Papers 13011, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  12. Goddard, John & Molyneux, Philip & Williams, Jonathan, 2014. "Dealing with cross-firm heterogeneity in bank efficiency estimates: Some evidence from Latin America," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 130-142.
  13. Mamonov, Mikhail, 2012. "The impact of market power of Russian banks on their credit risk tolerance: A panel study," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 28(4), pages 85-112.

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