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Competition and Stability in Banking

In: Monetary Policy under Financial Turbulence

Listed author(s):
  • Xavier Vives

    (IESE Business School)

I review the state of the art of the academic theoretical and empirical literature on the potential trade-off between competition and stability in banking. There are two basic channels through which competition may increase instability: by exacerbating the coordination problem of depositors/investors on the liability side and fostering runs/panics, and by increasing incentives to take risk and raise failure probabilities. The competition-stability trade-off is characterized and the implications of the analysis for regulation and competition policy are derived. It is found that optimal regulation may depend on the intensity of competition.

(This abstract was borrowed from another version of this item.)

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This chapter was published in: Luis Felipe Céspedes & Roberto Chang & Diego Saravia (ed.) Monetary Policy under Financial Turbulence, , chapter 12, pages 455-502, 2011.
This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v16c12pp455-502.
Handle: RePEc:chb:bcchsb:v16c12pp455-502
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