bank competition

The Bank Capital-Competition-Risk Nexus - A Global Perspective

The Global Financial Crisis (GFC) highlighted the importance of a number of unresolved empirical issues in the field of financial stability. First, there is the sign of the relationship between bank competition and financial stability. Second, there is the relation of capital adequacy of banks to risk. Third, the introduction of a leverage ratio in Basel III following the crisis leaves open the question of its effectiveness relative to the risk adjusted capital ratio (RAR).

Bank Leverage Ratios, Risk and Competition - An Investigation Using Individual Bank Data

Following experience in the global financial crisis (GFC), when banks with low leverage ratios were often in severe difficulty, despite high-risk-adjusted capital measures, a leverage ratio was introduced in Basel III to complement the risk-adjusted capital ratio (RAR). Empirical testing of the leverage ratio, individually and relative to regulatory capital is, however, sparse. More generally, the capital/risk/competition nexus has been neglected by regulators and researchers.

Exploring the Short- and Long-Run Links from Bank Competition to Risk – Reconciling Conflicting Hypotheses?

The subject of bank competition and risk has returned to the fore with the financial crisis of 2008-9, with a common view being that competition between financial institutions during the preceding boom was at the core of the crisis. This in turn implies that the benefits of banking competition for economic growth and efficiency need to be placed in the balance. On the other hand, there is an extensive literature, generally estimated on pre-crisis data, which finds conflicting results on the relation between competition and risk.