Allen and Gale on risk-taking and competition in banking

Borys Grochulski, John H Kareken

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

Using an elegant simple model, Allen and Gale [Comparing Financial Systems, MIT Press, 2001] obtain a result with significant policy implications: portfolio risk of banks increases as competition in banking, measured by the number of banks, increases. That result is, however, lacking in robustness. If banks play a game not all that different from that assumed by Allen and Gale, then, we show, a markedly different result obtains: risk-taking by banks is independent of the number of banks.

Original languageEnglish (US)
Pages (from-to)236-240
Number of pages5
JournalFinance Research Letters
Volume1
Issue number4
DOIs
StatePublished - Dec 1 2004

Keywords

  • Concentration and risk-taking in banking

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