Bank competition and risk-taking for loans and securities at the European Union level

Mercredi | 2017-10-05
Salle B103 – 12h00


The present study re-assesses the competition-risk link based on a sample of 3,680 commercial, cooperative and savings banks from EU28 countries during 2005-2015. We determine the banklevel competition for loans and securities using Lerner index, its efficiency-adjusted form and Boone indicator. Marginal costs (MC) are estimated with a translog cost function with two bank products (i.e. loans and securities) and three input prices (i.e. labour, borrowed funds and physical capital). We use OLS regression to estimate MC for Lerner index and SFA for its efficiency-improved form. The risk measures offer a complete perspective since they are accounting- (Z-score) and market-based (Distance to Default). We control for bank (i.e. size, growth of total loans, securities and total assets, share of total loans, customer deposits and securities in total assets, profitability and capital), country (i.e. inflation rate and GDP growth rate) and banking specific factors (i.e. entry and capital requirements, innovation degree, financial development, market power). Overall, the results confirm the U-inverted relationship, between competition and risk for loans and securities.