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

  • Inderst, Roman

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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  8. Viral Acharya & Tanju Yorulmazer, 2007. "Too many to fail - an analysis of time-inconsistency in bank closure policies," Bank of England working papers 319, Bank of England.
  9. Richard D. Phillips & J. David Cummins & Franklin Allen, 1996. "Financial Pricing of Insurance in the Multiple Line Insurance Company," Center for Financial Institutions Working Papers 96-09, Wharton School Center for Financial Institutions, University of Pennsylvania.
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  17. Andrew Winton, 2003. "Institutional Liquidity Needs and the Structure of Monitored Finance," Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1273-1313.
  18. Matutes, Carmen & Vives, Xavier, 2000. "Imperfect competition, risk taking, and regulation in banking," European Economic Review, Elsevier, vol. 44(1), pages 1-34, January.
  19. Degryse, H.A. & Laeven, L. & Ongena, S., 2007. "The Impact of Organizational Structure and Lending Technology on Banking Competition," Discussion Paper 2007-019, Tilburg University, Tilburg Law and Economic Center.
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  21. Djankov, Simeon & Jindra, Jan & Klapper, Leora F., 2005. "Corporate valuation and the resolution of bank insolvency in East Asia," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2095-2118, August.
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  25. 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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