Publication details

 

Competition and Risk-taking in Banking Industry

Basic information
Original title:Competition and Risk-taking in Banking Industry
Author:Rostislav Staněk
Further information
Citation:STANĚK, Rostislav. Competition and Risk-taking in Banking Industry. Financial Assets and Investing, Brno: Masarykova univerzita, 2012, roč. 2012, č. 1, s. 1-13. ISSN 1804-509X. doi:10.5817/FAI2012-1-1.Export BibTeX
@article{969466,
author = {Staněk, Rostislav},
article_location = {Brno},
article_number = {1},
keywords = {Moral hazard; Risk; Bank competition},
language = {eng},
issn = {1804-509X},
journal = {Financial Assets and Investing},
title = {Competition and Risk-taking in Banking Industry},
url = {http://is.muni.cz/do/econ/soubory/aktivity/fai/31053132/FAI_issue2012_01_stanek.pdf},
volume = {2012},
year = {2012}
}
Original language:English
Field:Economy
WWW:link to a new windowhttp://is.muni.cz/do/econ/soubory/aktivity/fai/31053132/FAI_issue2012_01_stanek.pdf
Type:Article in Periodical
Keywords:Moral hazard; Risk; Bank competition

The aim of the paper is to investigate the relationship between competition and risk-taking in the banking industry. The paper provides a general theoretical model that incorporates the charter value models and models with contracting problems. In particular, the model contains a moral hazard problem and it enables investments into the risk-free asset. Competition on the loan side of the market is modeled as spatial competition. The model predicts that the relationship between competition and the probability of bank failure is non-monotonic and U shaped. The prediction of the model is verified by the empirical analysis conducted using the data from Czech banking sector. The Herfindahl- Hirschman index is used as a measurement of competition and the Z-score is used as measurement of the probability of bank failure.

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