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Working Paper
Market Integration and Bank Risk-Taking
Using a workhorse model of bank competition and risk-taking, we show that increased competition from market integration affects bank risk-taking in ways beyond a simple increase in the number of competitor banks. Research has shown that increased competition in the form of an increase in the number of competitor banks can reduce risk-taking—the bank-competitor effect. Market integration not only increases the number of banks, but also the number of potential customers (depositors and borrowers) available to each bank. Increases in the potential customer base induces banks to behave more ...
Working Paper
Where Are All the New Banks? The Role of Regulatory Burden in New Charter Creation
New bank formation in the U.S. has declined dramatically since the financial crisis, from well over 100 new banks per year to less than 1. Many have suggested that this is due to newly-instituted regulation, but the current weak economy and low interest rates (which both depress banking profits) could also have played a role. We estimate a model of bank entry decisions on data from 1976 to 2013 which indicates that at least 75% of the decline in new bank formation would have occurred without any regulatory change. The standalone effect of regulation is more difficult to quantify.
Working Paper
Bank Competition and Risk-Taking under Market Integration
Linkages between bank competition and risk-taking are analyzed in a model where market integration is the principal driver of increased competition. Risk implications of across-market competition un-der banking market integration are significantly different from that of within-market competition. While both modes of competition increase the number of competitor banks, across-market competition yields a bank-customer effect that can potentially reverse any relation that prevails be- tween within-market competition and risk-taking. This result suggests that the lack of consensus in the bank ...