Abstract
This paper examines the causal relationship between banking competition and financial stability. We find that an exogenous competition shock significantly improved the stability of banks, consistent with the ‘competition-stability hypothesis’. We show that banks improved their cost efficiency and reduced credit risks in response to U.S. banking deregulation. In addition, we show the competition shock had a larger impact on banks who were initially operating in a less competitive environment. Our findings provide the first quasi-natural experimental evidence on the non-linear relationship between bank competition and financial stability.
| Original language | English |
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| Publication status | Published - 2019 |
| Event | 32nd Australasian Finance and Banking Conference - Sydney, Australia Duration: 16 Dec 2019 → 18 Dec 2019 https://www.unsw.edu.au/business/our-schools/banking-finance/news-events/australasian-finance-banking-conference/32nd-australasian-finance-and-banking-conference |
Conference
| Conference | 32nd Australasian Finance and Banking Conference |
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| Country/Territory | Australia |
| City | Sydney |
| Period | 16/12/19 → 18/12/19 |
| Internet address |
Keywords
- Bank competition
- financial stability