Publication Type

Journal Article

Version

Preprint

Publication Date

2-2016

Abstract

We examine the link between bank competition and financial stability using the recent financial crisis as the setting. We utilize variation in banking competition at the state level and find that banks facing less competition are more likely to engage in risky activities, more likely to face regulatory intervention, and more likely to fail. Focusing on the real estate market, we find that states with less competition had higher rates of mortgage approval, experienced greater housing price inflation before the crisis, and a steeper housing price decline during it. Overall, our study is consistent with greater competition increasing financial stability.

Keywords

competition, risk-taking, bank regulation, bank failure

Discipline

Accounting | Finance and Financial Management

Research Areas

Financial Performance Analysis

Publication

Journal of Financial and Quantitative Analysis

Volume

51

Issue

1

First Page

1

Last Page

28

ISSN

0022-1090

Identifier

10.1017/S0022109016000090

Publisher

Cambridge University Press

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://dx.doi.org/10.1017/S0022109016000090

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