Bank risk and competition: The other side of the story

Laura Spierdijk, Michalis Zaouras

Research output: Chapter in Book/Report/Conference proceedingChapterAcademicpeer-review

Abstract

We analyze the “other side” of the competition–risk nexus in a setting of endogenous bank risk by expressing the Lerner index as a function of risk-related parameters and other determinants. Our main result is that banks’ ability to raise prices above the competitive level depends, among other things, on the extent to which lenders respond to an increase in the loan rate by taking more risk. This finding illustrates that differences in Lerner indices may arise as a result of differences in risk-taking behavior.
Original languageEnglish
Title of host publicationHandbook of Competition in Banking and Finance
EditorsJacob A. Bikker, Laura Spierdijk
PublisherEdward Elgar Publishing Ltd.
Pages52-57
ISBN (Electronic)9781785363306
ISBN (Print)9781785363290
DOIs
Publication statusPublished - 2017
Externally publishedYes

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