RWP 20-21, December 2020; updated October 2024
Linkages between bank competition and risk-taking are analyzed in a model where market integra-tion is the principal driver of increased competition. Risk implications of across-market competition un-der banking market integration are significantly different from that of within-market competition. While 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 be- tween 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.
JEL Classification: D82, G21, L13
Article Citation
- Dam, Kaniska, and Rajdeep Sengupta. 2020. “Bank Competition and Risk-Taking under Market Integration.” Federal Reserve Bank of Kansas City, Research Working Paper no. 20-21, December. Available at External Linkhttps://doi.org/10.18651/RWP2020-21
The views expressed are those of the authors and do not necessarily reflect the positions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.