Abstract:
This paper explores the relationship between banking competition and financial stability. Based on a Spatial Competition Model, we investigate entrepreneurs' risk-taking behaviors in a game with banking competition. It shows that banking competition decreases the equilibrium loan interest rate, reduces entrepreneurs' risk-taking choices, and thus enhances financial stability. From the perspective of social welfare, banking competition may hurt banks' profitability, but it significantly increases depositors' and entrepreneurs' expected payoffs, and thus enhances social welfare. In consequence, an effective competition policy discourages the risk-taking behaviors of banks, and thus increases financial stability as well as market efficiency, resulting in a higher social welfare. The case with cost asymmetry is also addressed.
徐璐, 叶光亮. 银行业竞争与市场风险偏好选择——竞争政策的金融风险效应分析[J]. 金融研究, 2018, 453(3): 105-120.
XU Lu, YE Guangliang. Banking Competition and Risk: the Impact of Competition Policy on Financial Stability. Journal of Financial Research, 2018, 453(3): 105-120.
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