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.
competition, risk-taking, bank regulation, bank failure
Accounting | Finance and Financial Management
Financial Performance Analysis
Journal of Financial and Quantitative Analysis
Cambridge University Press
Atkins, Brian; LI, Lynn; NG, Jeffrey; and Rusticus, Tjomme O..
Bank Competition and Financial Stability: Evidence from the Financial Crisis. (2016). Journal of Financial and Quantitative Analysis. 51, (1), 1-28. Research Collection School Of Accountancy.
Available at: http://ink.library.smu.edu.sg/soa_research/1271
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