Allen and Gale on risk-taking and competition in banking |
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Authors: | Borys Grochulski John Kareken |
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Institution: | aDepartment of Economics, University of Minnesota, USA bCarlson School of Management, University of Minnesota, USA |
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Abstract: | Using an elegant simple model, Allen and Gale Comparing Financial Systems, MIT Press, 2001] obtain a result with significant policy implications: portfolio risk of banks increases as competition in banking, measured by the number of banks, increases. That result is, however, lacking in robustness. If banks play a game not all that different from that assumed by Allen and Gale, then, we show, a markedly different result obtains: risk-taking by banks is independent of the number of banks. |
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Keywords: | Concentration and risk-taking in banking |
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