## _wp13126

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---

### Introduction: competition, systemic risk, and policy framing
- Banks differ from non-financial firms because systemic risk and large negative externalities of bank distress for the real economy matter for competition policy.
- When competition affects banks’ risk-taking incentives, competition policy should internalize macro-prudential considerations.
- Paper structure (as provided):
  - Section II describes the “traditional” approach: competition may affect stability non-linearly, implying an intermediate optimal degree of competition.
  - Section III emphasizes structural changes in banking—greater availability of hard information, greater contestability, market-based operations, and scalability—implying a shift in competition policy priorities toward TBTF, scope of activities, and crisis-time flexibility on consolidation.

### Traditional approach: “Structure – Competition – Risks”
- Core finding:
  - An intermediate degree of bank competition is optimal; neither excessive restrictions nor unbridled competition are desirable.
- Channels where competition increases risk-taking:
  - Competition lowers margins and charter value (discounted stream of profits), increasing incentives to gamble (Marcus, 1984; Chan et al., 1986; Keeley, 1990; Hellman et al., 2000; Matutes and Vives, 2000; Repullo, 2004).
  - Competition may shift banks’ focus to maintaining market share instead of screening borrowers (Dell’Ariccia and Marquez, 2006).
- Opposing channels where competition reduces risk:
  - Lower interest rates can make borrowers safer and reduce risk (Boyd and De Nicolo, 2005).
  - Models imply an inverse U-shaped relationship between competition and stability (Martinez-Miera and Repullo, 2010).
- Empirical evidence highlights:
  - Measures of competition via margins or concentration and of stability via loan quality or failure probability indicate that too much competition may reduce stability (Keeley, 1990; Dick, 2006; Jimemez et al., 2007; Boyd and Runkle, 1993; Beck et al., 2006a,b).
  - Stability benefits of lower competition can arise from diversification in large banks (Paroush, 1995; Benston et al., 1995; Craig and Santos, 1997; Beck et al., 2006a,b).
  - Too little competition can compromise stability through distortions in large banks and increased operational risk (Chong, 1991; Hughes and Mester, 1998; De Nicolo, 2000; Boyd et al., 2006; Beck et al., 2006; Laeven and Levine, 2007; Cetorelli et al., 2007).
- Caveats:
  - Competition benefits static efficiency by lowering costs and increasing access to finance, especially for financially dependent firms (Petersen and Rajan, 1995).
  - Competition may disadvantage information-sensitive borrowers as services become more arm’s length (Berger et al., 2004; Carow et al., 2004; Karceski et al., 2005; Sapienza, 2002; Degryse et al., 2005).
  - When banks lack good customer knowledge, they may restrict credit during downturns, increasing procyclicality (Petersen and Rajan, 1994; Bae et al., 2002; Bolton at al., 2012).
- Policy implications under the traditional approach:
  - Objective: achieve an intermediate level of bank competition to preserve charter values while avoiding inefficiency and TBTF risks.
  - Tools focused on market structure (concentration):
    - Entry/exit rules (for domestic and foreign banks).
    - Consolidation policy (useful around crises; authorities can direct bank mergers; Perotti and Suarez, 2003).
    - Restrictions on activities (non-lending activities of banks, and bank-like activities of non-banks such as insurance companies).
  - Tools focused on contestability:
    - Establishing credit registries.
    - Providing equal access to infrastructure, such as payment systems.
    - Other measures enabling easier switching of banks by customers.

### Modern view: market-based and contestable banking — evolution and quantitative indicators
- Key quantitative indicators (U.S. banks, 1990s to 2007):
  - Net interest margin on lending fell from 4% to 3.25%.
  - The share of trading assets and securities in total assets increased from 20% to 30%.
  - The share of non-interest income in revenue increased from 35% to 50% (NY Fed, 2012).
  - Average return on trading assets: 2%, versus 6% return on lending (derived as the net interest margin plus the 3% average cost of funding; FHLB SF, 2012).
- Interpretation and institutional changes:
  - Hard information expanded access to quantifiable, verifiable measures of borrower creditworthiness, reducing the hold of soft (proprietary) information from bank-customer relationships.
  - Banking became more contestable (lower profits and reduced charter values) and more scalable.
  - Hard information increased tradability of bank assets and market-based operations (e.g., securitized debt, proprietary trading), which are contestable with low per-unit profits but high scalability.
  - Some segments remain soft-information intensive (SME and syndicated lending, lending in less advanced economies); modern banks combine both hard- and soft-information businesses.

### Implications for competition and prudential policy under modern banking
- Prudential challenges:
  - Lower margins and charter values per unit of exposure increase incentives to take risk.
  - Hard information enables aggressive size expansion of banks and use of market-based activities for large-scale opportunistic gambles.
  - Banks therefore have both incentives and high ability to take risks on a large scale (example: leveraged positions in high-grade securitized debt that yield positive returns in most states but extreme losses with low probability; losses realized during the crisis fell on creditors and governments; Acharya et al., 2010).
- Reduced effectiveness of traditional competition policy:
  - Due to contestability, charter values and incentives to take risk respond less to changes in market structure; hence, focusing on concentration is less effective.
  - Empirical illustration (2007–2009 crisis): relationship between bank concentration (market share of 3 largest banks) and equity loss for large traded banks was weak; countries with similar concentration (e.g., Canada, France, Ireland) experienced vastly different crisis outcomes. Other factors—non-core exposures funded in wholesale markets and high leverage—played larger roles.
- New priorities for bank competition policy (three areas):
  1. Addressing the TBTF problem:
     - Modern banks’ ease of scale expansion exacerbates TBTF.
     - Competition policy tools might need to restrict the size of large banks.
     - Competition policy should address distortions from TBTF, notably cheaper funding available to TBTF banks and the resulting uneven playing field.
  2. Understanding interactions with structural issues:
     - Excess risk-taking often stems from structural reasons: market-based operations and competition from non-banks.
     - Competition policy interacts with and may complement structural bank regulation initiatives.
  3. Reorient competition policy:
     - Focus on scope (range of activities of banks and non-banks) rather than solely market structure (concentration).
     - Allow higher concentration and government control of banks temporarily following a crisis to facilitate resolution, even when that distorts competition.

### Facilitating crisis management — key point
- Effective resolution of financial crises might require measures that temporarily distort competition, such as government ownership and control of banks, or high bank concentration.
- Competition policy may need to accommodate these measures to facilitate effective bank resolution.

### Addressing the TBTF Problem — findings and policy approaches
- Findings:
  - TBTF banks are complex, interconnected, and cannot be easily wound down; historical interventions have often been de facto bailouts protecting creditors and sometimes shareholders.
  - Anticipation of bailouts increases incentives of TBTF banks to take risk and creates a race to become TBTF to obtain lower funding costs.
  - In modern banking, TBTF is especially acute because:
    - Little public or market pressure exists to reduce size of large banks; outside crises, contestability can allow concentrated but competitive systems.
    - Banks have incentives to grow to maximize the TBTF subsidy, exploit possible economies of scale in market-based activities, and benefit from “network centrality.”
    - Hard-information activities and market-based operations are scalable, making growth easy.
  - Current policy relies on Basel III capital surcharges for SIFIs, but concerns exist that surcharges may be insufficient:
    - Basel SIFI capital surcharge is relatively small (up to 2.5 percent of risk-weighted assets).
    - The funding-cost advantage from TBTF can be as high as 80 basis points a year (Ueda and Weder di Mauro, 2012), potentially offsetting surcharge costs.
- Policy approaches (two broad approaches):
  - Quantity-based approach (directly restrict bank size):
    - Tools: limit mergers, force spin-offs, etc.
    - Challenges:
      - Modern banks can be competitive and efficient despite size.
      - Large banks may show spurious economies of scale due to: (a) lower cost of funds from TBTF subsidy, (b) less borrower screening because of ability to bear more lending risk, (c) scalable market-based activities that are risky.
    - Justifications and targeting:
      - Let competition policy adopt an explicit macro-prudential objective to address welfare costs of possible crises.
      - Focus on subsegments of bank operations where size harms competition (e.g., opaque customers, small business borrowers, “local” information-intensive customers); ensuring access to finance on competitive terms could justify restricting bank size or facilitating entry on competition grounds.
  - Price-based approach (correct competitive distortions from TBTF):
    - Key distortion: uneven playing field where large banks access cheaper funding due to implicit TBTF guarantees.
    - Direct tool: impose taxes or fines on large banks to extract unfair competitive advantage (example given: a tax on wholesale funding with a rate increasing in bank size).
    - Effects:
      - From competition policy perspective: levels the playing field.
      - From prudential perspective: reduces incentives for banks to grow, diminishing TBTF and enhancing stability.

### Interaction with Structural Policies — findings and implications
- Findings:
  - Structural policies are prudential measures restricting bank or non-bank activities that contribute to systemic risk.
  - Crisis evidence: many bank failures resulted from non-core, market-based activities (investing in securitized credit, wholesale loan origination/originate-to-distribute, carry trade, proprietary trading).
  - Non-bank lending amplified housing bubbles and was riskier in the run-up to the crisis; lax regulatory standards for non-banks created artificial competitive advantages and amplified risks.
  - Excess competition for retail deposits was a structural problem: retail deposits are scarce and valuable because insured deposits are the most stable funding source; excess competition (from non-banks or government-affiliated local savings banks) left commercial banks reliant on wholesale funding, heightening vulnerability.
- Policy implications:
  - Restricting market-based activities of banks (examples from recent proposals):
    - Volcker Rule prohibition of proprietary trading (Dodd-Frank Act, U.S.).
    - Segregation of non-core activities in Vickers and Liikanen proposals (UK and EC).
    - Rationale: non-core activities are risky and have low margins; restricting them can boost charter value and increase bank stability; moves banks closer to traditional, soft information-intensive models.
    - Benefit to competition policy: separating less contestable core from more contestable non-core activities allows more targeted competition policy approaches to the two sub-sectors.
  - Level playing field between banks and non-banks:
    - Competition policy can support prudential policy by insisting non-banks competing in lending face the same or similar prudential standards as banks.
  - Addressing deposit scarcity:
    - Competition policy might assist by establishing a level playing field in access to household savings, including dealing with implicit guarantees and lax regulation of non-banks.

### Competition Policy and Crisis Management — trade-offs and temporary accommodations
- Normal competition policy favors limited government involvement in banks to preserve a level playing field between government-affiliated and other banks.
- Crisis management may require exceptional government actions: taking ownership in banks, offering guarantees, or exercising control to direct restructuring to maintain financial stability and lending capacity.
- In exceptional circumstances, competition policy should:
  - Acknowledge the trade-off between effective bank resolution and preserving the level playing field.
  - Aim to strike a balance that may include temporarily allowing higher banking system concentration to enable banks to rebuild charter value or facilitate the shrinking of an over-expanded banking system.
  - Temporarily accommodate higher concentration or government ownership/control when necessary for crisis resolution.

### Conclusions — two main lessons
- Lesson 1: Bank competition policy should have a macro-prudential component.
  - Because degree of competition affects bank risk-taking, sometimes sacrificing some competition is required to ensure greater financial stability.
  - Bank competition policy may require rules distinct from those for non-financial firms.
  - Cooperation between the competition authority and the prudential regulator is needed, despite differences in objectives, approaches, and regulatory perimeter.
- Lesson 2: Bank competition policy should respond to recent evolution of the banking industry and new prudential challenges.
  - The existing literature’s key conclusion — that an intermediate degree of competition in banking is optimal — remains valid.
  - In market-based, contestable banking, traditional focus on market structure (concentration, entry/exit, consolidation) has limited effect.
  - Competition policy should:
    - Reorient to deal with the TBTF problem.
    - Focus on scope of bank activities rather than simple concentration.
    - Facilitate effective crisis resolution.

*Source: _wp13126 (IMF working paper content provided).*

### 1. Evolution of Bank Business Model: Information, Profits, Scalability ................................. 7

### 1. Evolution of Bank Business Model: Information, Profits, Scalability

### Introduction: competition, systemic risk, and policy framing
- Banks differ from non-financial firms because systemic risk and large negative externalities of bank distress for the real economy matter for competition policy.
- When competition affects banks’ risk-taking incentives, competition policy should internalize macro-prudential considerations.
- Paper structure:
  - Section II describes the “traditional” approach: competition may affect stability non-linearly, implying an intermediate optimal degree of competition.
  - Section III emphasizes structural changes in banking—greater availability of hard information, greater contestability, market-based operations, and scalability—implying a shift in competition policy priorities toward TBTF, scope of activities, and crisis-time flexibility on consolidation.

### Traditional approach: “Structure – Competition – Risks”
Findings from theory and empirical literature
- The net suggestion: an intermediate degree of bank competition is optimal; neither excessive restrictions nor unbridled competition are desirable.
- Channels where competition increases risk-taking:
  - Competition lowers margins and charter value (discounted stream of profits), increasing incentives to gamble (Marcus, 1984; Chan et al., 1986; Keeley, 1990; Hellman et al., 2000; Matutes and Vives, 2000; Repullo, 2004).
  - Competition may shift banks’ focus to maintaining market share instead of screening borrowers (Dell’Ariccia and Marquez, 2006).
- Opposing channels where competition reduces risk:
  - Lower interest rates can make borrowers safer and reduce risk (Boyd and De Nicolo, 2005).
  - Models imply an inverse U-shaped relationship between competition and stability (Martinez-Miera and Repullo, 2010).
- Empirical evidence:
  - Studies measuring competition via margins or concentration and stability via loan quality or failure probability show that too much competition may reduce stability (Keeley, 1990; Dick, 2006; Jimemez et al., 2007; Boyd and Runkle, 1993; Beck et al., 2006a,b).
  - Some stability benefits of lower competition arise from diversification in large banks (Paroush, 1995; Benston et al., 1995; Craig and Santos, 1997; Beck et al., 2006a,b).
  - Too little competition can compromise stability through distortions in large banks (Chong, 1991; Hughes and Mester, 1998; De Nicolo, 2000; Boyd et al., 2006) and increased operational risk (Beck et al., 2006; Laeven and Levine, 2007; Cetorelli et al., 2007).
- Caveats:
  - Competition benefits static efficiency by lowering costs and increasing access to finance, especially for financially dependent firms (Petersen and Rajan, 1995).
  - Competition may disadvantage information-sensitive borrowers as services become more arm’s length (Berger et al., 2004; Carow et al., 2004; Karceski et al., 2005; Sapienza, 2002; Degryse et al., 2005).
  - When banks lack good customer knowledge, they may restrict credit during downturns, increasing procyclicality (Petersen and Rajan, 1994; Bae et al., 2002; Bolton at al., 2012).

Policy implications under the traditional approach
- Objective: achieve an intermediate level of bank competition to preserve charter values while avoiding inefficiency and TBTF risks.
- Tools focused on market structure (concentration):
  - Entry/exit rules (for domestic and foreign banks);
  - Consolidation policy (useful around crises; authorities can direct bank mergers; Perotti and Suarez, 2003);
  - Restrictions on activities (non-lending activities of banks, and bank-like activities of non-banks such as insurance companies).
- Tools focused on contestability (competition given market structure):
  - Establishing credit registries;
  - Providing equal access to infrastructure, such as payment systems;
  - Other measures enabling easier switching of banks by customers.

### Modern view: market-based and contestable banking
Evolution and quantitative indicators (U.S. banks, 1990s to 2007)
- Net interest margin on lending fell from 4% to 3.25%.
- The share of trading assets and securities in total assets increased from 20% to 30%.
- The share of non-interest income in revenue increased from 35% to 50% (NY Fed, 2012).
- Average return on trading assets: 2%, versus 6% return on lending (derived as the net interest margin plus the 3% average cost of funding; FHLB SF, 2012).
- Interpretation:
  - Hard information expanded access to quantifiable, verifiable measures of borrower creditworthiness, reducing the hold of soft (proprietary) information from bank-customer relationships.
  - Banking became more contestable (lower profits and reduced charter values) and more scalable.
  - Hard information increased tradability of bank assets and market-based operations (e.g., securitized debt, proprietary trading), which are contestable with low per-unit profits but high scalability.
  - Some segments remain soft-information intensive (SME and syndicated lending, lending in less advanced economies); modern banks combine both hard- and soft-information businesses.

Implications for competition and prudential policy
- Prudential challenges:
  - Lower margins and charter values per unit of exposure increase incentives to take risk.
  - Hard information enables aggressive size expansion of banks and use of market-based activities for large-scale opportunistic gambles.
  - Banks therefore have both incentives and high ability to take risks on a large scale (example: leveraged positions in high-grade securitized debt that yield positive returns in most states but extreme losses with low probability; losses realized during the crisis fell on creditors and governments; Acharya et al., 2010).
- Reduced effectiveness of traditional competition policy:
  - Due to contestability, charter values and incentives to take risk respond less to changes in market structure; hence, focusing on concentration is less effective.
  - Empirical illustration (2007–2009 crisis): relationship between bank concentration (market share of 3 largest banks) and equity loss for large traded banks was weak; countries with similar concentration (e.g., Canada, France, Ireland) experienced vastly different crisis outcomes. Other factors—non-core exposures funded in wholesale markets and high leverage—played larger roles.
- New priorities for bank competition policy (three areas):
  1. Addressing the TBTF problem:
     - Modern banks’ ease of scale expansion exacerbates TBTF.
     - Competition policy tools might need to restrict the size of large banks.
     - Competition policy should address distortions from TBTF, notably cheaper funding available to TBTF banks and the resulting uneven playing field.
  2. Understanding interactions with structural issues:
     - Excess risk-taking often stems from structural reasons: market-based operations and competition from non-banks.
     - Competition policy interacts with and may complement structural bank regulation initiatives.
  3. (Implied in Section III summary) Reorient competition policy:
     - Focus on scope (range of activities of banks and non-banks) rather than solely market structure (concentration).
     - Allow higher concentration and government control of banks temporarily following a crisis to facilitate resolution, even when that distorts competition.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp13126.pdf*

### 3.      Facilitating crisis management. Effective resolution of financial crises might

### 3.      Facilitating crisis management. Effective resolution of financial crises might

### Facilitating crisis management — key point
- Effective resolution of financial crises might require measures that temporarily distort competition, such as government ownership and control of banks, or high bank concentration.
- Competition policy may need to accommodate these measures to facilitate effective bank resolution.

### Traditional vs. Modern Banking (implications for policy)
- Modern banking characteristics that matter:
  - Market-based operations, hard (quantifiable) information, high contestability, high scalability, low charter value, incentives to take risk: High, ability to generate risk: High.
  - Prudential risks: High.
  - Effectiveness of traditional competition policy (focused on concentration) in reducing bank risk-taking: Limited.
  - TBTF problem: Acute; competition policy can (a) reduce TBTF and (b) deal with the competitive distortions of TBTF.
  - Structural concerns: Present; competition policy may improve stability by using restrictions on activities of banks and non-banks.
  - Bank resolution: Complex; competition policy might need to accommodate a range of crisis management tools.
- Traditional banks contrasted:
  - Soft (proprietary) information, low contestability, low scalability, high charter value, incentives to take risk: Low, ability to generate risk: Low.
  - Prudential risks: Relatively low.
  - Effectiveness of traditional competition policy in reducing bank risk-taking: High.
  - TBTF problem: Limited.
  - Structural concerns: Limited (simple structure).
  - Bank resolution: Can be relatively simple (FDIC style).

### C. Addressing the TBTF Problem — findings and policy approaches
Findings
- TBTF banks are complex, interconnected, and cannot be easily wound down; historical interventions have often been de facto bailouts protecting creditors and sometimes shareholders.
- Anticipation of bailouts increases incentives of TBTF banks to take risk and creates a race to become TBTF to obtain lower funding costs.
- In modern banking, TBTF is especially acute because:
  - Little public or market pressure exists to reduce size of large banks; outside crises, contestability can allow concentrated but competitive systems.
  - Banks have incentives to grow to maximize the TBTF subsidy, exploit possible economies of scale in market-based activities, and benefit from “network centrality.”
  - Hard-information activities and market-based operations are scalable, making growth easy.
- Current policy relies on Basel III capital surcharges for SIFIs, but concerns exist that surcharges may be insufficient:
  - Basel SIFI capital surcharge is relatively small (up to 2.5 percent of risk-weighted assets).
  - The funding-cost advantage from TBTF can be as high as 80 basis points a year (Ueda and Weder di Mauro, 2012), potentially offsetting surcharge costs.

Policy approaches (two broad approaches)
- Quantity-based approach (directly restrict bank size)
  - Tools: limit mergers, force spin-offs, etc.
  - Challenges:
    - Modern banks can be competitive and efficient despite size.
    - Large banks may show spurious economies of scale due to: (a) lower cost of funds from TBTF subsidy, (b) less borrower screening because of ability to bear more lending risk, (c) scalable market-based activities that are risky.
  - Ways to justify:
    - Let competition policy adopt an explicit macro-prudential objective to address welfare costs of possible crises.
    - Focus on subsegments of bank operations where size harms competition (e.g., opaque customers, small business borrowers, “local” information-intensive customers); ensuring access to finance on competitive terms could justify restricting bank size or facilitating entry on competition grounds.
- Price-based approach (correct competitive distortions from TBTF)
  - Key distortion: uneven playing field where large banks access cheaper funding due to implicit TBTF guarantees.
  - Direct tool: impose taxes or fines on large banks to extract unfair competitive advantage (example given: a tax on wholesale funding with a rate increasing in bank size).
  - Effects:
    - From competition policy perspective: levels the playing field.
    - From prudential perspective: reduces incentives for banks to grow, diminishing TBTF and enhancing stability.

### D. Interaction with Structural Policies — findings and implications
Findings
- Structural policies are prudential measures restricting bank or non-bank activities that contribute to systemic risk.
- Crisis evidence: many bank failures resulted from non-core, market-based activities (investing in securitized credit, wholesale loan origination/originate-to-distribute, carry trade, proprietary trading).
- Non-bank lending amplified housing bubbles and was riskier in the run-up to the crisis; lax regulatory standards for non-banks created artificial competitive advantages and amplified risks.
- Excess competition for retail deposits was a structural problem: retail deposits are scarce and valuable because insured deposits are the most stable funding source; excess competition (from non-banks or government-affiliated local savings banks) left commercial banks reliant on wholesale funding, heightening vulnerability.

Policy implications
- Restricting market-based activities of banks (examples from recent proposals):
  - Volcker Rule prohibition of proprietary trading (Dodd-Frank Act, U.S.).
  - Segregation of non-core activities in Vickers and Liikanen proposals (UK and EC).
  - Rationale: non-core activities are risky and have low margins; restricting them can boost charter value and increase bank stability; moves banks closer to traditional, soft information-intensive models.
  - Benefit to competition policy: separating less contestable core from more contestable non-core activities allows more targeted competition policy approaches to the two sub-sectors.
- Level playing field between banks and non-banks:
  - Competition policy can support prudential policy by insisting non-banks competing in lending face the same or similar prudential standards as banks.
- Addressing deposit scarcity:
  - Competition policy might assist by establishing a level playing field in access to household savings, including dealing with implicit guarantees and lax regulation of non-banks.

### E. Competition Policy and Crisis Management — trade-offs and temporary accommodations
- Normal competition policy favors limited government involvement in banks to preserve a level playing field between government-affiliated and other banks.
- Crisis management may require exceptional government actions: taking ownership in banks, offering guarantees, or exercising control to direct restructuring to maintain financial stability and lending capacity.
- In exceptional circumstances, competition policy should:
  - Acknowledge the trade-off between effective bank resolution and preserving the level playing field.
  - Aim to strike a balance that may include temporarily allowing higher banking system concentration to enable banks to rebuild charter value or facilitate the shrinking of an over-expanded banking system.
- Competition policy may need to temporarily accommodate higher concentration or government ownership/control when necessary for crisis resolution.

### IV. Conclusions — two main lessons
- Lesson 1: Bank competition policy should have a macro-prudential component.
  - Because degree of competition affects bank risk-taking, sometimes sacrificing some competition is required to ensure greater financial stability.
  - Bank competition policy may require rules distinct from those for non-financial firms.
  - Cooperation between the competition authority and the prudential regulator is needed, despite differences in objectives, approaches, and regulatory perimeter.
- Lesson 2: Bank competition policy should respond to recent evolution of the banking industry and new prudential challenges.
  - The existing literature’s key conclusion — that an intermediate degree of competition in banking is optimal — remains valid.
  - In market-based, contestable banking, traditional focus on market structure (concentration, entry/exit, consolidation) has limited effect.
  - Competition policy should:
    - Reorient to deal with the TBTF problem.
    - Focus on scope of bank activities rather than simple concentration.
    - Facilitate effective crisis resolution.

*Source: _wp13126 - 3.      Facilitating crisis management. Effective resolution of financial crises might (IMF working paper content provided).*

### REFERENCES

### _wp13126 - REFERENCES

### Bank competition, concentration, and stability
- Acharya, V.V., T.F. Cooley, M.P. Richardson, and I. Walter, 2010, “Manufacturing Tail Risk: A Perspective on the Financial Crisis of 2007-09,” Foundations and Trends in Finance, 4.
- Allen, F., and D. Gale, 2004, “Competition and financial stability,” Journal of Money, Credit, and Banking, Vol. 36, No. 3, Pt.2, pp. 433-80.
- Beck, T., 2008, “Bank Competition and Financial Stability: Friends or Foes,” World Bank Policy Research Working Paper 4656.
- Beck, T., Demirgüç-Kunt, A., and Levine, R. (2006a) “Bank Concentration, Competition, and Crises: First Results,” Journal of Banking and Finance, 30, pp. 1581-603.
- Beck, T., O. De Jonghe, and G. Schepens, 2013, “'Bank Competition and Stability: Cross-country Heterogeneity,” Journal of Financial Intermediation, forthcoming.
- Berger, A., Demirgüç-Kunt, A., Haubrich, J., and Levine, R., 2004, “Bank Concentration and Competition: An Evolution in the Making,” Journal of Money, Credit, and Banking, Vol. 36, pp. 433-53.
- Boyd, J.H., and G. De Nicoló, 2005, “The Theory of Bank Risk-Taking and Competition Revisited,” Journal of Finance, Vol. 60, pp. 1329-343.
- Boyd, J.H., G. De Nicoló, and A. Jalal, 2006, “Bank Risk Taking and Competition: New Theory, New Empirics,” IMF Working Paper 06/297.
- Keeley, M.C., 1990, “Deposit Insurance, Risk and Market Power in Banking,” American Economic Review, Vol. 80, pp. 1183-200.
- Martinez-Miera D., and R. Repullo, 2010, “Does Competition Reduce the Risk of Bank Failure?” Review of Financial Studies, Vol. 23, pp. 3638-664.
- Repullo, R., 2004, “Capital Requirement, Market Power, and Risk-Taking in Banking,” Journal of Financial Intermediation, Vol. 13, pp. 156-82.

### Mergers, consolidation, and market structure
- Benston, G., W.C. Hunter, L. Wall, 1995, “Motivations for Bank Mergers and Acquisitions: Enhancing the Deposit Insurance Put Option Versus Earnings Diversification,” Journal of Money, Credit and Banking, Vol. 27, pp. 777-88.
- Carow, K.A., Edward Kane, and R. Narayanan, 2004, “How Have Borrowers Fared in Banking Mega-Mergers?” Working Paper.
- Degryse, H., N. Masschelein, and J. Mitchell, 2005, “SMEs and Bank Lending Relationships: The Impact of Mergers,” CEPR Working Paper No. 5061.
- Dick, A., 2006, “Nationwide Branching and Its Impact on Market Structure, Quality and Bank Performance,” Journal of Business, Vol. 79, No. 2, pp. 567-92.
- Karceski, J., S. Ongena, and D.C. Smith, 2005, “The Impact of Bank Consolidation on Commercial Borrower Welfare,” Journal of Finance, Vol. 60, pp. 2043-082.
- Paroush, J., 1995, “The Effect of Merger and Acquisition Activity on the Safety and Soundness of a Banking System,” Review of Industrial Organization, Vol. 10, pp. 53-67.
- Sapienza, P., 2002, “The Effects of Banking Mergers on Loan Contracts,” Journal of Finance, Vol. 57, pp. 1891-921.
- NY Fed [Federal Reserve Bank of New York], 2012, Quarterly Trends for Consolidated U.S. Banking Organizations (Second Quarter).

### Risk-taking, funding, and crisis dynamics
- Bolton, P., X. Freixas, L. Gambacorta, and P.E. Mistrulli, 2012, “Relationship and Transaction Lending in a Crisis,” Working Paper.
- Boot, A.W.A., and L. Ratnovski, 2012, “Banking and Trading,” IMF Working Paper 12/238.
- Dell’Ariccia, G., and R. Marquez, 2006, “Lending Booms and Lending Standards,” Journal of Finance, Vol. 61, No. 5, pp. 2511-546.
- Dell’Ariccia, G., D. Igan, and L. Laeven, 2012, “Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market,” Journal of Money, Credit and Banking, Vol. 44, No. 2-3, pp. 367–84.
- Flannery, M.J., 1989, “Capital Regulation and Insured Banks’ Choice of Individual Loan Default Risks,” Journal of Monetary Economics, Vol. 24, pp. 235-58.
- Huang, R., and L. Ratnovski, 2009, “Why Are Canadian Banks More Resilient?” IMF Working Paper 09/152.
- Huang, R., and L. Ratnovski, 2011, “The Dark Side of Bank Wholesale Funding,” Journal of Financial Intermediation, Vol. 20, No. 2, pp. 248-63.
- Ueda, K., and B. Weder di Mauro, 2012, “Quantifying Structural Subsidy Values for Systemically Important Financial Institutions,” IMF Working Paper 12/128.
- International Monetary Fund, 2012, Global Financial Stability Report, Oct., Ch. 3.

### Regulation, supervision, and policy responses
- Barth, J.R., Caprio, Jr., G., and Levine, R., 2004, “Bank Supervision and Regulation: What Works Best?” Journal of Financial Intermediation, Vol. 13, No. 2, pp. 205-48.
- Claessens, S., 2009, “Competition in the Financial Sector: Overview of Competition Policies,” IMF Working Paper 09/45.
- Claessens, S., Z. Pozsar, L. Ratnovski, and M. Singh, 2012, “Shadow Banking: Economics and Policy,” IMF Staff Discussion Note 12/12.
- Dagher, J., and N. Fu, 2012, “What Fuels the Boom Drives the Bust: Regulation and the Mortgage Crisis,” IMF Working Paper 11/215.
- Gambacorta, L., and A. van Rixtel, 2013, “Structural Bank Regulation Initiatives: Approaches and Implications,” BIS Working Paper 412.
- Haldane, A., 2012, “On Being the Right Size,” Speech given at Institute of Economic Affairs 22nd Annual Series, The 2012 Beesley Lectures at the Institute of Directors.
- Haldane, A., 2013, “Have We Solved 'Too Big To Fail'?” VOXEU.
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- Vickers, J., 2010, “Central Banks and Competition Authorities: Institutional Comparisons and New Concerns,” BIS Working Paper 331.

### Lending relationships, information, and borrower outcomes
- Bae, H.-K., J.-K. Kang, and C.-W. Lim, 2002, “The Value of Durable Bank Relationships: Evidence from Korean Banking Shocks,” Journal of Financial Economics, Vol. 64, pp. 181-214.
- Chan, Y.-S., S. Greenbaum, and A. Thakor, 1986, “Information Reusability, Competition and Bank Asset Quality,” Journal of Banking and Finance, Vol. 10, 243-53.
- Petersen, M., and R. Rajan, 1995, “The Effect of Credit Market Competition on Lending Relationships,” Quarterly Journal of Economics, Vol. 110, pp. 407-35.
- Petersen, M., and R. Rajan, 1994, “The Benefits of Lending Relationships: Evidence from Small Business Data,” Journal of Finance, Vol. 49, No. 1, pp. 3-37.
- Jimenez, G., J. Lopez, and J. Saurina, 2007, “How Does Competition Impact Bank Risk-Taking?” Federal Reserve Bank of San Francisco Working Paper 2007-23.
- De Nicoló, G., 2000, “Size, Charter Value and Risk in Banking: An International Perspective,” International Finance Discussion Paper #689, Board of Governors of the Federal Reserve System.
- Petersen, M., and R. Rajan, 1994, “The Benefits of Lending Relationships: Evidence from Small Business Data,” Journal of Finance, Vol. 49, No. 1, pp. 3-37.

*Source: _wp13126 - REFERENCES*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp13126.pdf_