Bank Risk and Competition: The Other Side of the Story

Laura Spierdijk; Michalis Zaouras

doi:10.4337/9781785363306.00010

Bank Risk and Competition: The Other Side of the Story

Laura Spierdijk
, Michalis Zaouras

Economics, Econometrics and Finance

Research output: Chapter in Book/Report/Conference proceeding › Chapter › Academic › peer-review

1 Citation (Scopus)

Abstract

We analyze the “other side” of the competition–risk nexus in a setting of endogenous bank risk by expressing the Lerner index as a function of risk-related parameters and other determinants. Our main result is that banks’ ability to raise prices above the competitive level depends, among other things, on the extent to which lenders respond to an increase in the loan rate by taking more risk. This finding illustrates that differences in Lerner indices may arise as a result of differences in risk-taking behavior.

Original language	English
Title of host publication	Handbook of Competition in Banking and Finance
Editors	Jacob A. Bikker, Laura Spierdijk
Publisher	Edward Elgar Publishing
Chapter	4
Pages	52-57
Number of pages	6
ISBN (Electronic)	978-1-78536-330-6
ISBN (Print)	978-1-78536-329-0
DOIs	https://doi.org/10.4337/9781785363306.00010
Publication status	Published - 2017

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title = "Bank Risk and Competition: The Other Side of the Story",

abstract = "We analyze the {\textquotedblleft}other side{\textquotedblright} of the competition{\textendash}risk nexus in a setting of endogenous bank risk by expressing the Lerner index as a function of risk-related parameters and other determinants. Our main result is that banks{\textquoteright} ability to raise prices above the competitive level depends, among other things, on the extent to which lenders respond to an increase in the loan rate by taking more risk. This finding illustrates that differences in Lerner indices may arise as a result of differences in risk-taking behavior.",

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AB - We analyze the “other side” of the competition–risk nexus in a setting of endogenous bank risk by expressing the Lerner index as a function of risk-related parameters and other determinants. Our main result is that banks’ ability to raise prices above the competitive level depends, among other things, on the extent to which lenders respond to an increase in the loan rate by taking more risk. This finding illustrates that differences in Lerner indices may arise as a result of differences in risk-taking behavior.

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M3 - Chapter

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BT - Handbook of Competition in Banking and Finance

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A2 - Spierdijk, Laura

PB - Edward Elgar Publishing

ER -

Bank Risk and Competition: The Other Side of the Story

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