Loan Market Competition and Bank Risk-Taking |
| |
Authors: | " target="_blank">Wolf Wagner |
| |
Institution: | (1) CentER, Tilburg University, Tilburg, The Netherlands;(2) European Banking Center, Tilburg University, Tilburg, The Netherlands;(3) TILEC, Tilburg University, Tilburg, The Netherlands;(4) Department of Economics, Tilburg University, Postbus 90153, 5000 LE Tilburg, The Netherlands |
| |
Abstract: | Recent literature (Boyd and De Nicoló, J Finance 60:1329–1343, 2005) has argued that competition in the loan market lowers bank risk by reducing the risk-taking incentives of borrowers. Using
a model where competition arises from falling switching costs for entrepreneurs, we show that the impact of loan market competition
on banks is reversed if banks can adjust their loan portfolios. The reason is that when borrowers become safer, banks want
to offset the effect on their balance sheet and switch to higher-risk lending. They even overcompensate the effect of safer
borrowers because loan market competition erodes their franchise values and thus increases their risk-taking incentives. |
| |
Keywords: | |
本文献已被 SpringerLink 等数据库收录! |
|