On the relationship between market power and bank risk taking

The Influence of Bank Performance, Market Condition and Economic Growth on Non-Performing Loans

“…High values of the LI indicate less bank competition that is often associated with the quiet life hypothesis but still raise doubts about its specific influence on nonperforming loans. Several authors consider that too much competition can encourage banks to take on more risk (e.g., Manove et al, 2001;Dam & Zendejas-Castillo, 2006;De Nicoló & Turk-Ariss, 2010), while others found that as competition in bank markets increases, lending rates reduce as well as the probability of borrower default (among others, Boyd et al, 2009;Martinez-Miera & Repullo, 2010;Schaeck & Cihák, 2014). • The Bank Z-score (BZ) is a proxy for bank market stability and captures the probability of default of a country's commercial banking system.…”

Drivers of depositor discipline in credit unions

“…We first examine the impact of a deposit insurance scheme, which splits deposits into those that fall under the insured limit and those uninsured. The first‐order effect of insuring deposits is probably to mitigate or eliminate the reaction (discipline) of those deposits that are covered by the insurance system (Calomiris & Jaremski, 2019; Dam et al., 2015; Demirgüç‐Kunt & Detragiache, 2002; Ioannidou & Penas, 2010; Iyer et al., 2016; Keeley, 1990; Martin et al., 2018). However, evidence of market discipline in insured deposits has been found in banks (Cook & Spellman, 1994; Davenport & McDill, 2006; Karels & McClatchey, 1999; Park & Peristiani, 1998).…”

Bank risk‐taking in a mixed duopoly: The role of the state‐owned bank

“…In the banking literature, the effect of competition on bank risk‐taking is under debate. While there are some studies focusing on deposit market competition such as Cordella and Yeyati (2002), Repullo (2004), and Allen and Gale (2004), some research has emphasized the role of credit market competition such as Boyd and De Nicolo (2005), Martinez‐Miera and Repullo (2010), Allen et al (2011), and Dam et al (2015). Therefore, we further discuss the influence of credit market competition on bank risk‐taking.…”

“…There are some studies, such asIannotta et al (2007),Andrianova et al (2008), andCornett et al (2010), documenting that state-owned banks suffer low profitability.3 After the 2007-2008 financial crisis broke out, many governments, such as the United States, intervened by injecting capital and providing liquidity to large banks in danger, rendering partially state-owned banks more common around the world(Andrianova et al, 2012;Iannotta et al, 2013). Based on the facts mentioned, we further extend our model to discuss the role of partial nationalization with numerical simulations.4 Repullo (2004) andDam et al (2015) explore a differentiated deposit market in which banks may invest in either a prudent or a gambling asset. They find that market power does affect banks' asset choices.5 The setting of Cournot quantity competition follows previous studies on partial nationalization, such asFershtman (1990),Matsumura (1998),Saha and Sensarma (2004),Saha and Sensarma (2011), andSaha and Sensarma (2013), which assume identical loan services and provide an analytical framework.…”

“…4 4 Repullo (2004) and Dam et al (2015) explore a differentiated deposit market in which banks may invest in either a prudent or a gambling asset. They find that market power does affect banks' asset choices. …”