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Competition and Bank Risk the Role of Securitization and Bank Capital

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  • David Marques-Ibanez
  • Yener Altunbas
  • Michiel van Leuvensteijn
  • Tianshu Zhao

Abstract

We examine how bank competition in the run-up to the 2007–2009 crisis affects banks’ systemic risk during the crisis. We then investigate whether this effect is influenced by two key bank characteristics: securitization and bank capital. Using a sample of the largest listed banks from 15 countries, we find that greater market power at the bank level and higher competition at the industry level lead to higher realized systemic risk. The results suggest that the use of securitization exacerbates the effects of market power on the systemic dimension of bank risk, while capitalization partially mitigates its impact.

Suggested Citation

  • David Marques-Ibanez & Yener Altunbas & Michiel van Leuvensteijn & Tianshu Zhao, 2019. "Competition and Bank Risk the Role of Securitization and Bank Capital," IMF Working Papers 2019/140, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2019/140
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    Keywords

    WP; bank risk; capital ratio; bank competition variable; securitization; competition; index value; Lerner index; bank capital; bank competition; monopolist bank; bank market power; bank capitalization; bank-quarter estimation; Systemic risk; Capital adequacy requirements; Global;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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