Deposit market competition, wholesale funding, and bank risk

Abstract

In this paper we revisit the long debate on the risk effects of bank competition and propose a new approach to the empirical estimation of the relation between deposit market competition and bank risk. Our approach accounts for the opportunity of banks to shift to wholesale funding when deposit market competition is intense. The analysis is based on a unique comprehensive dataset which combines retail deposit rates data with data on bank characteristics and with data on local deposit market features for a sample of 589 U.S. banks. Our results support the notion of a risk-enhancing effect of deposit market competition.

The impact of political instability on risk‐taking in the banking sector: International evidence using a dynamic panel data model (System‐GMM)

“…Besides the primary measure of banking sector's risk-taking (−1 × Z-score), the paper will also examine the banking stability (Zscore) and earnings volatility (σROA) as alternative measures of the banking risk-taking (see, Craig & Dinger, 2013;García-Kuhnert, Marchica, & Mura, 2015;Jin et al, 2013;Laeven & Levine, 2009;Mourouzidou-Damtsa et al, 2017).…”

Competition, bank fragility, and financial crisis

“…The traditional "competition-fragility hypothesis" suggests that tougher bank competition decreases franchise value and results in higher risk taking (Marcus, 1984;Keeley, 1990;Demsetz et al, 1996;Carletti & Hartmann, 2003;Craig & Dinger, 2013). On the other hand, the "competition-stability hypothesis" contends that lower competition in the loan market may induce banks to charge higher interest rates to their borrowers and results in higher banks' risk-taking either via moral hazard or adverse selection channel (Boyd & H1: More competition is associated with higher bank fragility (the traditional competitionfragility hypothesis).…”

Relationship among cost of financial intermediation, risk, and efficiency: Empirical evidence from Bangladeshi commercial banks

“…Following the study of Gupta and Moudud-Ul-Huq (2020), Zheng et al (2017a), Jeon and Lim (2013), Craig andDinger (2013), andAbedifar et al (2013), we also use the Z-score to encounter the stability risk of banks. Z-score is the inverse measure of stability risk.…”

“…Therefore, the fixed-effect model with endogeneity in dynamic panel stimulates to use of the system GMM estimates for unbiased and consistent results. The discrepancies in unobserved and bias estimation are significantly addressed by Beck et al (2013), Pan and Wang (2013), Craig and Dinger (2013), Abedifar et al (2013).…”