Market power and risk taking behavior of banks

Authors

  • Kaniska Dam Université Catholique de Louvain
  • Susana Wendy Zendejas Castillo Université Catholique de Louvain

DOI:

https://doi.org/10.24201/ee.v21i1.157

Keywords:

risk-taking, market concentration, optimal entry policy

Abstract

We consider a monopolistically competitive banking sector in order to analyze the effects of market concentration on the risk-taking behavior of banks. We show that, under full deposit insurance, a higher level of competition induces banks to invest on a risky asset. When the market concentration is high, banks tend to take less risk. We also show that maximum social welfare is achieved either through free entry or through entry restriction.

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Published

2006-01-01

How to Cite

Dam, K., & Zendejas Castillo, S. W. (2006). Market power and risk taking behavior of banks. Estudios Económicos De El Colegio De México, 21(1), 55–84. https://doi.org/10.24201/ee.v21i1.157