Advanced Search
MyIDEAS: Login

Does Competition Reduce The Risk Of Bank Failure?

Contents:

Author Info

  • Rafael Repullo

    ()
    (CEMFI, Centro de Estudios Monetarios y Financieros)

  • David Martínez-Miera

    ()
    (CEMFI, Centro de Estudios Monetarios y Financieros)

Abstract

A large theoretical literature shows that competition reduces banks’ franchise values and induces them to take more risk. Recent research contradicts this result: When banks charge lower rates, their borrowers have an incentive to choose safer investments, so they will in turn be safer. However, this argument does not take into account the fact that lower rates also reduce the banks’ revenues from non-defaulting loans. This paper shows that when this effect is taken into account, a U-shaped relationship between competition and the risk of bank failure generally obtains.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cemfi.es/ftp/wp/0801.pdf
Download Restriction: no

Bibliographic Info

Paper provided by CEMFI in its series Working Papers with number wp2008_0801.

as in new window
Length:
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:cmf:wpaper:wp2008_0801

Contact details of provider:
Postal: Casado del Alisal, 5, 28014 Madrid
Phone: 914290551
Fax: 914291056
Email:
Web page: http://www.cemfi.es/
More information through EDIRC

Related research

Keywords: Bank competition; bank failure; credit risk; loan rates; loan defaults; default correlation; net interest income; moral hazard risk-shifting; franchise values.;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Pedro Mira & Victor Aguirregabiria, 2007. "Dynamic Discrete Choice Structural Models: A Survey," Working Papers wp2007_0711, CEMFI.
  2. Enrique Moral-Benito, 2012. "Determinants of Economic Growth: A Bayesian Panel Data Approach," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 566-579, May.
  3. Repullo, Rafael, 2004. "Policies for Banking Crises: A Theoretical Framework," CEPR Discussion Papers 4727, C.E.P.R. Discussion Papers.
  4. Robert J. Aumann & Roberto Serrano, 2007. "An Economic Index of Riskiness," Discussion Paper Series dp446, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  5. Stefano Gagliarducci & Tommaso Nannicini & Paolo Naticchioni, 2007. "Electoral Rules And Politicians' Behavior: A Micro Test," Working Papers wp2007_0716, CEMFI.
  6. Gabriel Jiménez & Jose A. Lopez & Jesús Saurina, 2010. "How Does Competition Impact Bank Risk-Taking?," Banco de Espa�a Working Papers 1005, Banco de Espa�a.
  7. Samuel Bentolila & Juan J. Dolado & Juan F. Jimeno, 2007. "Does Immigration Affect The Phillips Curve? Some Evidence For Spain," Working Papers wp2007_0718, CEMFI.
  8. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  9. Roberto Serrano & Antonio Cabrales, 2007. "Implementation in Adaptive Better-Response Dynamics," Working Papers 2007-10, Brown University, Department of Economics.
  10. Perotti, Enrico C & Suarez, Javier, 2001. "Last Bank Standing: What Do I Gain if You Fail?," CEPR Discussion Papers 2933, C.E.P.R. Discussion Papers.
  11. Allan M Feldman & Roberto Serrano, 2007. "Arrow's Impossibility Theorem: Preference Diversity in a Single-Profile World," Working Papers 2007-12, Brown University, Department of Economics.
  12. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
  13. Rafael Repullo, 2002. "Capital requirements, market power, and risk-taking in banking," Proceedings 809, Federal Reserve Bank of Chicago.
  14. Matutes, Carmen & Vives, Xavier, 1995. "Imperfect Competition, Risk Taking, and Regulation in Banking," CEPR Discussion Papers 1177, C.E.P.R. Discussion Papers.
  15. Gema Zamarro, 2006. "Accounting For Heterogeneous Returns In Sequential Schooling Decisions," Working Papers wp2006_0609, CEMFI.
  16. Enrique Sentana & Francisco Peñaranda, 2007. "Duality In Mean-Variance Frontiers With Conditioning Information," Working Papers wp2007_0715, CEMFI.
  17. Gerard Llobet & Michael Manove, 2006. "Network Size and Network Capture," Boston University - Department of Economics - Working Papers Series WP2006-007, Boston University - Department of Economics.
  18. Chiappori, P.A. & Perez-Castrillo, D. & Verdier, T., 1992. "Spatial Competition in the Banking System: Localization, Cross Subsidies and the Regulation of Deposit Rates," DELTA Working Papers 92-15, DELTA (Ecole normale supérieure).
  19. Goodhart, Charles & Schoenmaker, Dirk, 1995. "Should the Functions of Monetary Policy and Banking Supervision Be Separated?," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 539-60, October.
  20. Enrique Sentana & Gabriele Fiorentini, 2007. "On The Efficiency And Consistency Of Likelihood Estimation In Multivariate Conditionally Heteroskedastic Dynamic Regression Models," Working Papers wp2007_0713, CEMFI.
  21. Laura Crespo, 2006. "Caring For Parents And Employment Status Of European Mid-Life Women," Working Papers wp2006_0615, CEMFI.
  22. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  23. Keeley, Michael C, 1990. "Deposit Insurance, Risk, and Market Power in Banking," American Economic Review, American Economic Association, vol. 80(5), pages 1183-1200, December.
  24. Jose Ceron & Javier Suarez, 2006. "Hot And Cold Housing Markets: International Evidence," Working Papers wp2006_0603, CEMFI.
  25. Roberto Serrano, 2007. "Cooperative Games: Core And Shapley Value," Working Papers wp2007_0709, CEMFI.
  26. Abel Elizalde & Rafael Repullo, 2007. "Economic and Regulatory Capital in Banking: What Is the Difference?," International Journal of Central Banking, International Journal of Central Banking, vol. 3(3), pages 87-117, September.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cmf:wpaper:wp2008_0801. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Araceli Requerey).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.