A reexamination on the effect of bank competition on bank non-performing loans |
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| Authors: | Alan T Wang |
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| Institution: | Department of Accountancy, Graduate Institute of Finance, National Cheng Kung University, Tainan, Taiwan |
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| Abstract: | This article examines whether competition in the deposit and loan markets results in a more stable or fragile banking industry. Following the assumption that deposit and loan competitions are not separable, a simple equilibrium model is developed. Then, using the aggregate time-series data of Federal Deposit Insurance Corporation (FDIC)-insured financial institutions, we estimate the generalized VAR model of deposit rate (DR), interest margin between the loan and DRs, and non-performing loan ratio. Our results support the competition–fragility hypothesis. |
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| Keywords: | Bank competition non-performing loans Generalized VAR |
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