Bank Competition and Financial Stability: Evidence from the Financial Crisis

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

Research output: Contribution to journalArticle

29 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

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