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Bank competition and financial stability: A comparison of commercial banks and mutual savings banks in Korea

  • Jeon, Jin Q.
  • Lim, Kwang Kyu
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    In this study, we provide new evidence that the relationship between banking competition and financial stability varies depending on the characteristics of banks. By using a sample of two different types of banks, Korean commercial banks and mutual savings banks, we find that the non-linear relationship between competition and the stability of commercial banks reflects a trade-off between the interest effect and risk-shifting effect. However, consistent with Boyd and De Nicolo (2005), competition has a positive effect on the stability of mutual savings banks with greater business risk and weaker corporate governance. Our results provide important implications on banking competition policy.

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    Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

    Volume (Year): 25 (2013)
    Issue (Month): C ()
    Pages: 253-272

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    Handle: RePEc:eee:pacfin:v:25:y:2013:i:c:p:253-272
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