Bank competition, asset allocations and risk of failure: an empirical investigation
This study is an empirical investigation of theoretical predictions concerning the impact of bank competition on bank risk and asset allocations. Recent work (Boyd, De Nicolò and Jalal, 2009, BDNJ henceforth) predicts that as competition in banking increases, the loan-to-asset ratio will rise (under...
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| Main Authors: | , , |
|---|---|
| Format: | Book |
| Language: | English |
| Published: |
Munich
CESifo
2010
|
| Series: | CESifo working papers
3198 : Category 11, Industrial organisation |
| Online Access: | Volltext |
| Summary: | This study is an empirical investigation of theoretical predictions concerning the impact of bank competition on bank risk and asset allocations. Recent work (Boyd, De Nicolò and Jalal, 2009, BDNJ henceforth) predicts that as competition in banking increases, the loan-to-asset ratio will rise (under reasonable assumptions), but the probability of bank failure can either increase or decrease. However, the probability of bank failure will fall if and only if borrowers’ response to take on less risk as loan rates decline is sufficiently strong. We test these predictions using two samples with radically different attributes. With both, we find that banks’ probability of failure is negatively and significantly related to measures of competition. We also find that as competition intensifies, borrower risk decreases and the loan-to-asset ratio increases. These results are consistent with the predictions of the BDNJ model. |
| Physical Description: | 34 S. |
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| 520 | 8 | |a This study is an empirical investigation of theoretical predictions concerning the impact of bank competition on bank risk and asset allocations. Recent work (Boyd, De Nicolò and Jalal, 2009, BDNJ henceforth) predicts that as competition in banking increases, the loan-to-asset ratio will rise (under reasonable assumptions), but the probability of bank failure can either increase or decrease. However, the probability of bank failure will fall if and only if borrowers’ response to take on less risk as loan rates decline is sufficiently strong. We test these predictions using two samples with radically different attributes. With both, we find that banks’ probability of failure is negatively and significantly related to measures of competition. We also find that as competition intensifies, borrower risk decreases and the loan-to-asset ratio increases. These results are consistent with the predictions of the BDNJ model. | |
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| author | Boyd, John De Nicolò, Gianni Jalal, Abu M. |
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| id | DE-604.BV036858729 |
| illustrated | Not Illustrated |
| indexdate | 2024-07-09T22:49:33Z |
| institution | BVB |
| language | English |
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| physical | 34 S. |
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| publishDate | 2010 |
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| spelling | Boyd, John Verfasser (DE-588)142648000 aut Bank competition, asset allocations and risk of failure an empirical investigation John Boyd ; Gianni de Nicoló ; Abu M. Jalal Munich CESifo 2010 34 S. txt rdacontent n rdamedia nc rdacarrier CESifo working papers 3198 : Category 11, Industrial organisation This study is an empirical investigation of theoretical predictions concerning the impact of bank competition on bank risk and asset allocations. Recent work (Boyd, De Nicolò and Jalal, 2009, BDNJ henceforth) predicts that as competition in banking increases, the loan-to-asset ratio will rise (under reasonable assumptions), but the probability of bank failure can either increase or decrease. However, the probability of bank failure will fall if and only if borrowers’ response to take on less risk as loan rates decline is sufficiently strong. We test these predictions using two samples with radically different attributes. With both, we find that banks’ probability of failure is negatively and significantly related to measures of competition. We also find that as competition intensifies, borrower risk decreases and the loan-to-asset ratio increases. These results are consistent with the predictions of the BDNJ model. De Nicolò, Gianni Verfasser (DE-588)130339520 aut Jalal, Abu M. Verfasser aut CESifo working papers 3198 : Category 11, Industrial organisation (DE-604)BV013978326 3198 http://www.cesifo-group.de/portal/pls/portal/docs/1/1185282.PDF Verlag kostenfrei Volltext |
| spellingShingle | Boyd, John De Nicolò, Gianni Jalal, Abu M. Bank competition, asset allocations and risk of failure an empirical investigation CESifo working papers |
| title | Bank competition, asset allocations and risk of failure an empirical investigation |
| title_auth | Bank competition, asset allocations and risk of failure an empirical investigation |
| title_exact_search | Bank competition, asset allocations and risk of failure an empirical investigation |
| title_full | Bank competition, asset allocations and risk of failure an empirical investigation John Boyd ; Gianni de Nicoló ; Abu M. Jalal |
| title_fullStr | Bank competition, asset allocations and risk of failure an empirical investigation John Boyd ; Gianni de Nicoló ; Abu M. Jalal |
| title_full_unstemmed | Bank competition, asset allocations and risk of failure an empirical investigation John Boyd ; Gianni de Nicoló ; Abu M. Jalal |
| title_short | Bank competition, asset allocations and risk of failure |
| title_sort | bank competition asset allocations and risk of failure an empirical investigation |
| title_sub | an empirical investigation |
| url | http://www.cesifo-group.de/portal/pls/portal/docs/1/1185282.PDF |
| volume_link | (DE-604)BV013978326 |
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