The link between bank competition and risk in the United Kingdom: two views for policymaking

Sebastian de-Ramon, William Francis () and Michael Straughan

No 885, Bank of England working papers from Bank of England

Abstract: We use quantile regression to examine the links between competition and firm-level solvency risk for all banks and building societies in the United Kingdom between 1994 and 2013. Quantile regression provides a finer picture of the relationship (as compared with standard regression techniques) across institutions ranked according to how close each is to insolvency. We find that for domestic banks and building societies already close to insolvency the association is favourable, suggesting that risk decreases (increases) with more (less) competition. For foreign-owned banks and for relatively healthy building societies farther from insolvency we find the opposite, indicating that risk increases (decreases) with more (less) competition. We find that regulation is effective in moderating adverse links between risk and competition. Our results highlight real differences in the links between competition and risk at the individual level that are useful for assessing the link at the system-wide level.

Keywords: Bank competition; bank risk; Boone indicator; quantile regression (search for similar items in EconPapers)
JEL-codes: G21 G28 L22 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2020-09-04
New Economics Papers: this item is included in nep-ban and nep-com
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0885

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