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| Author: | Bolt, W. Tieman, A.F. |
| Title: | Banking competition, risk and regulation |
| Journal: | Scandinavian Journal of Economics
2004 : VOL. 106:4, p. 783-804 |
| Index terms: | Banking Bank failures Competition Regulations |
| Language: | eng |
| Abstract: | In a dynamic framework, commercial banks compete for customers by setting acceptance criteria for granting loans, while taking into account regulatory requirements. By easing its acceptance criteria a bank faces a trade-off between attracting more demand for loans, thus making higher per-period profits, and deterioration in the quality of its loan portfolio, thus tolerating a higher risk of failure. The main results of the study state that more stringent capital adequacy requirements lead banks to set stricter acceptance criteria, and that increased competition in the banking industry leads to riskier bank behaviour. |
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