Journal Article

The Conditional Effects of Market Power on Bank Risk—Cross-Country Evidence

Jens Forssbæck and Choudhry Tanveer Shehzad

in Review of Finance

Published on behalf of European Finance Association

Volume 19, issue 5, pages 1997-2038
Published in print August 2015 | ISSN: 1572-3097
Published online October 2014 | e-ISSN: 1573-692X | DOI: https://dx.doi.org/10.1093/rof/rfu044
The Conditional Effects of Market Power on Bank Risk—Cross-Country Evidence

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  • Financial Regulation
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We investigate the relationship between market power and risk for a large panel of banks worldwide. Loan and deposit market power are measured separately at bank-year level, and the risk effect of market power is conditioned on several factors predicted by theory. Both loan and deposit market power have a stable, monotonically negative effect on risk, irrespective of risk measure. The effect is larger for asset risk, and is independent of charter value and capital ratios. The effect on default risk tends to decrease in the quality of banking regulation, whereas the conditioning effects of deposit insurance protection are mixed.

Keywords: G21; G28; D40; F39

Journal Article.  13603 words.  Illustrated.

Subjects: Financial Regulation ; Banking ; International Finance ; Market Structure and Pricing

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