DP16566 Credit Market Competition and Bank Capitalization

Author(s): Havva Özlem Dursun-de-Neef, Thomas Gehrig
Publication Date: September 2021
Keyword(s): bank capital, Credit market competition, fragility, Risk Taking, stability
JEL(s): D22, G21, L13
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16566

We document that within regional U.S. mortgage markets an increase in competition exerts differential effects on banks with large and small market shares. Large market share banks reduce capitalization and increase risk taking as a response to an increase in the intensity of competition, while small market share banks enhance capitalization and reduce risk taking. These results are tied to market shares and not driven by bank size or the level of concentration within local regional markets.