Review of Finance Vol. 19 No. 5 2015

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

Jens Forssbæck¹; Choudhry Tanveer Shehzad^2,3

¹ 1 Lund University School of Economics and Management and Knut Wicksell Centre for Financial Studies, · ² 2 SDSB, Lahore University of Management Sciences, and · ³ 3 University of Groningen

Abstract

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.

DOI

10.1093/rof/rfu044

Volume

19

Issue

5

Pages

1997-2038

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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