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Bank Competition and Risk-Taking Under Market Integration

Author

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  • Kaniṣka Dam

    (Economics Division, Centro de Investigación y Docencia Económicas, Mexico City 01210, Mexico)

  • Rajdeep Sengupta

    (Research Division, Federal Reserve Bank of Kansas City, Kansas City, Missouri 64198)

Abstract

Linkages between bank competition and risk-taking are analyzed in a model where market integration is the principal driver of increased competition. Risk implications of across-market competition under banking market integration are significantly different from that of within-market competition. Although both modes of competition increase the number of competitor banks, across-market competition yields a bank-customer effect that can potentially reverse any relation that prevails between within-market competition and risk-taking. This result suggests that the lack of consensus in the bank competition-financial stability literature is not an anomaly but an inherent feature of the analysis.

Suggested Citation

  • Kaniṣka Dam & Rajdeep Sengupta, 2025. "Bank Competition and Risk-Taking Under Market Integration," Management Science, INFORMS, vol. 71(8), pages 7161-7181, August.
    • Handle: RePEc:inm:ormnsc:v:71:y:2025:i:8:p:7161-7181
    DOI: 10.1287/mnsc.2022.03495
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