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

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  • Inderst, Roman

Abstract

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.

Suggested Citation

  • Inderst, Roman, 2013. "Prudence as a competitive advantage: On the effects of competition on banks' risk-taking incentives," European Economic Review, Elsevier, vol. 60(C), pages 127-143.
  • Handle: RePEc:eee:eecrev:v:60:y:2013:i:c:p:127-143
    DOI: 10.1016/j.euroecorev.2012.10.001
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    References listed on IDEAS

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    Cited by:

    1. Andreas Haufler & Ulf Maier, 2016. "Regulatory Competition in Capital Standards with Selection Effects among Banks," CESifo Working Paper Series 5839, CESifo Group Munich.
    2. repec:eee:riibaf:v:41:y:2017:i:c:p:303-317 is not listed on IDEAS
    3. repec:eee:jbfina:v:80:y:2017:i:c:p:108-118 is not listed on IDEAS
    4. Maier, Ulf, 2017. "Regulatory Competition In Capital Standards with Selection Effects among Banks," Rationality and Competition Discussion Paper Series 7, CRC TRR 190 Rationality and Competition.

    More about this item

    Keywords

    G21; Keywords:; Banking; Risk taking;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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