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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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