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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 ...