Home » Bank Competition, Risk and Asset Allocations by De Nicolo Gianni
Bank Competition, Risk and Asset Allocations De Nicolo Gianni

Bank Competition, Risk and Asset Allocations

De Nicolo Gianni

Published September 25th 2013
ISBN : 9781282843578
ebook
35 pages
Enter answer

 About the Book 

We study a banking model in which banks invest in a riskless asset and compete in both deposit and risky loan markets. The model predicts that as competition increases, both loans and assets increase- however, the effect on the loans-to-assets ratio is ambiguous. Similarly, as competition increases, the probability of bank failure can either increase or decrease. We explore these predictions empirically using a cross-sectional sample of 2,500 U.S. banks in 2003, and a panel data set of about 2600 banks in 134 non-industrialized countries for the period 1993-2004. With both samples, we find that banks probability of failure is negatively and significantly related to measures of competition, and that the loan-to-asset ratio is positively and significantly related to measures of competition. Furthermore, several loan loss measures commonly employed in the literature are negatively and significantly related to measures of bank competition. Thus, there is no evidence of a trade-off between bank competition and stability, and bank competition seems to foster banks willingness to lend.