{"title":"Welfare and bank risk-taking","authors":"Marcella Lucchetta","doi":"10.1007/s10436-024-00440-x","DOIUrl":null,"url":null,"abstract":"<div><p>Our study investigates a model of general equilibrium banking that incorporates moral hazard and incentive mechanisms for bank risk-taking, with a particular focus on deposit market competition. Our findings reveal that when banks compete perfectly in the deposit market, it leads to maximal welfare and an optimal level of bank failure risk. This outcome remains valid even if the risk of failure for competitive banks is higher than that of banks with monopoly rents, and it is not affected by social costs associated with bank failures. Our model suggests that there is no trade-off between bank competition and financial stability. Our results support the empirical findings of Carlson, Correia, and Luck (J Polit Econ 130(2): 462–520, 2022).</p></div>","PeriodicalId":45289,"journal":{"name":"Annals of Finance","volume":null,"pages":null},"PeriodicalIF":0.8000,"publicationDate":"2024-04-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Annals of Finance","FirstCategoryId":"1085","ListUrlMain":"https://link.springer.com/article/10.1007/s10436-024-00440-x","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
Our study investigates a model of general equilibrium banking that incorporates moral hazard and incentive mechanisms for bank risk-taking, with a particular focus on deposit market competition. Our findings reveal that when banks compete perfectly in the deposit market, it leads to maximal welfare and an optimal level of bank failure risk. This outcome remains valid even if the risk of failure for competitive banks is higher than that of banks with monopoly rents, and it is not affected by social costs associated with bank failures. Our model suggests that there is no trade-off between bank competition and financial stability. Our results support the empirical findings of Carlson, Correia, and Luck (J Polit Econ 130(2): 462–520, 2022).
期刊介绍：
Annals of Finance provides an outlet for original research in all areas of finance and its applications to other disciplines having a clear and substantive link to the general theme of finance. In particular, innovative research papers of moderate length of the highest quality in all scientific areas that are motivated by the analysis of financial problems will be considered. Annals of Finance''s scope encompasses - but is not limited to - the following areas: accounting and finance, asset pricing, banking and finance, capital markets and finance, computational finance, corporate finance, derivatives, dynamical and chaotic systems in finance, economics and finance, empirical finance, experimental finance, finance and the theory of the firm, financial econometrics, financial institutions, mathematical finance, money and finance, portfolio analysis, regulation, stochastic analysis and finance, stock market analysis, systemic risk and financial stability. Annals of Finance also publishes special issues on any topic in finance and its applications of current interest. A small section, entitled finance notes, will be devoted solely to publishing short articles – up to ten pages in length, of substantial interest in finance. Officially cited as: Ann Finance
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