Presenter: Dean Corbae
Affiliation: University of Wisconsin, Departments of Economics and Finance
Date: 14th March, 2023
Time: 13:00 GMT (15:00 Israel Time)
Abstract: We provide a tractable dynamic model of the banking industry where (1) an intensification of competition increases market measures of efficiency and fragility of banks but not necessarily social measures of efficiency; (2) economies can avoid the fragility costs of competition by enhancing bank governance and tightening leverage requirements; and (3) bank competition materially shapes risk taking and the monetary transmission mechanism. Using detailed data on U.S. banks, we find statistical evidence supportive of the model predictions.
Coauthor: Ross Levine (University of California, Berkeley).