Abstract
| Original language | English |
|---|---|
| Place of Publication | Tilburg |
| Publisher | TILEC |
| Number of pages | 12 |
| Volume | 2007-010 |
| Publication status | Published - 2007 |
Publication series
| Name | TILEC Discussion Paper |
|---|---|
| Volume | 2007-010 |
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Keywords
- loan market competition
- risk shifting
- bank stability
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Loan Market Competition and Bank Risk-Taking. / Wagner, W.B.
Tilburg : TILEC, 2007. (TILEC Discussion Paper; Vol. 2007-010).Research output: Working paper › Discussion paper › Other research output
TY - UNPB
T1 - Loan Market Competition and Bank Risk-Taking
AU - Wagner, W.B.
N1 - Pagination: 12
PY - 2007
Y1 - 2007
N2 - Recent literature (Boyd and De Nicoló, 2005) has argued that competition in the loan market lowers bank risk by reducing the risk-taking incentives of borrowers. We show that the impact of loan market competition on banks is reversed if banks can adjust their loan portfolios. The reason is that when borrowers become safer, banks want to offset the effect on their balance sheet and switch to higher-risk lending. They even overcompensate the effect of safer borrowers because loan market competition erodes their franchise values and thus increases their risk-taking incentives.
AB - Recent literature (Boyd and De Nicoló, 2005) has argued that competition in the loan market lowers bank risk by reducing the risk-taking incentives of borrowers. We show that the impact of loan market competition on banks is reversed if banks can adjust their loan portfolios. The reason is that when borrowers become safer, banks want to offset the effect on their balance sheet and switch to higher-risk lending. They even overcompensate the effect of safer borrowers because loan market competition erodes their franchise values and thus increases their risk-taking incentives.
KW - loan market competition
KW - risk shifting
KW - bank stability
M3 - Discussion paper
VL - 2007-010
T3 - TILEC Discussion Paper
BT - Loan Market Competition and Bank Risk-Taking
PB - TILEC
CY - Tilburg
ER -