Bank Competition and Financial Stability: Evidence from the Financial Crisis

Brian Akins, Lynn Li, Jeffrey Ng, Tjomme O. Rusticus

Research output: Contribution to journalArticlepeer-review

40 Scopus citations

Abstract

We examine the link between bank competition and financial stability using the recent financial crisis as the setting. We utilize variation in banking competition at the state level and find that banks facing less competition are more likely to engage in risky activities, more likely to face regulatory intervention, and more likely to fail. Focusing on the real estate market, we find that states with less competition had higher rates of mortgage approval, experienced greater inflation in housing prices before the crisis, and experienced a steeper decline in housing prices during the crisis. Overall, our study is consistent with greater competition increasing financial stability.

Original languageEnglish (US)
Pages (from-to)1-28
Number of pages28
JournalJournal of Financial and Quantitative Analysis
Volume51
Issue number1
DOIs
StatePublished - Feb 1 2016

Bibliographical note

Funding Information:
This paper has also benefited from comments we received from seminar participants at the Massachusetts Institute of Technology. We also wish to thank Rice University, Boston University, Singapore Management University, and London Business School for their financial support.

Publisher Copyright:
Copyright © Michael G. Foster School of Business, University of Washington 2016.

Fingerprint Dive into the research topics of 'Bank Competition and Financial Stability: Evidence from the Financial Crisis'. Together they form a unique fingerprint.

Cite this