{
  "title": "Bank Competition, Risk, and Asset Allocations",
  "publication": "IMF Working Papers, July 1, 2009",
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  "summary": "We study a banking model in which banks invest in a riskless asset and compete in both deposit and risky loan markets. The model predicts that as competition increases, both loans and assets increase; however, the effect on the loans-to-assets ratio is ambiguous.",
  "sections": [
    {
      "heading": "Model predictions",
      "content": "- Banks invest in a riskless asset and compete in both deposit and risky loan markets.\n- As competition increases:\n  - Both loans and assets increase.\n  - The effect on the loans-to-assets ratio is ambiguous.\n  - The probability of bank failure can either increase or decrease."
    },
    {
      "heading": "Empirical approach and samples",
      "content": "- Cross-sectional sample:\n  - 2,500 U.S. banks in 2003.\n- Panel data set:\n  - About 2,600 banks in 134 non-industrialized countries for the period 1993-2004.\n- Empirical measures include:\n  - Measures of competition.\n  - Loan-to-asset ratios.\n  - Several loan loss measures commonly employed in the literature.\n  - Banks' probability of failure."
    },
    {
      "heading": "Key empirical findings",
      "content": "- Relationship between competition and probability of failure:\n  - Banks' probability of failure is negatively and significantly related to measures of competition (found in both samples).\n- Relationship between competition and lending behavior:\n  - The loan-to-asset ratio is positively and significantly related to measures of competition (found in both samples).\n- Relationship between competition and asset quality:\n  - Several loan loss measures are negatively and significantly related to measures of bank competition.\n- Overall interpretation:\n  - There is no evidence of a trade-off between bank competition and stability.\n  - Bank competition seems to foster banks' willingness to lend."
    },
    {
      "heading": "Implications and conclusions",
      "content": "- Increased competition is associated with higher lending (loans and loan-to-asset ratios) without evidence of higher failure risk in the samples analyzed.\n- Loan loss measures declining with competition suggest improvements in asset performance or selection under greater competition.\n- The ambiguous theoretical link between competition and the loans-to-assets ratio, and between competition and failure probability, is resolved empirically in these samples toward pro-competition outcomes for lending and stability.\n\nJohn H. Boyd, Gianni De Nicolo, and Abu M. Jalal \"Bank Competition, Risk, and Asset Allocations\", IMF Working Papers 2009, 143 (2009), accessed 9/17/2026, https://doi.org/10.5089/9781451872903.001\n\n---\n\n Content in this bundle\n\n- wp09143\n  - wp09143 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp09143 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/bank-competition-risk-and-asset-allocations-23047"
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    "Authors: John H. Boyd, Gianni De Nicolo, Abu M. Jalal",
    "Published: July 1, 2009",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451872903.001",
    "Banks invest in a riskless asset and compete in both deposit and risky loan markets.",
    "As competition increases:",
    "Cross-sectional sample:",
    "Panel data set:",
    "Empirical measures include:",
    "Relationship between competition and probability of failure:",
    "Relationship between competition and lending behavior:",
    "Relationship between competition and asset quality:",
    "Overall interpretation:",
    "Increased competition is associated with higher lending (loans and loan-to-asset ratios) without evidence of higher failure risk in the samples analyzed.",
    "Loan loss measures declining with competition suggest improvements in asset performance or selection under greater competition.",
    "The ambiguous theoretical link between competition and the loans-to-assets ratio, and between competition and failure probability, is resolved empirically in these samples toward pro-competition outcomes for lending and stability.",
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