{
  "title": "Bank Competition, Risk Taking, and their Consequences: Evidence from the U.S. Mortgage and Labor Markets",
  "publication": "IMF Working Papers, July 6, 2018",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2018/07/06/bank-competition-risk-taking-and-their-consequences-evidence-from-the-u-s-46034",
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  "summary": "Bank competition can induce excessive risk taking due to risk shifting. This paper tests this hypothesis using micro-level U.S. mortgage data by exploiting the exogenous variation in local house price volatility. The paper finds that, in response to high expected house price volatility, banks in U.",
  "sections": [
    {
      "heading": "Summary and main findings",
      "content": "- Bank competition can induce excessive risk taking due to risk shifting.\n- Using micro-level U.S. mortgage data and exploiting exogenous variation in local house price volatility, the paper tests this hypothesis.\n- The paper finds that, in response to high expected house price volatility, banks in U.S. counties with a competitive mortgage market lowered lending standards by \"twice as much\" as those with concentrated markets between 2000 and 2005.\n- This pattern of risk taking was associated with real economic outcomes during the financial crisis, including higher unemployment rates in local real sectors."
    },
    {
      "heading": "Data, scope, and methodology (as described)",
      "content": "- Empirical approach exploits exogenous variation in local house price volatility.\n- Micro-level U.S. mortgage data are the primary data source.\n- Time period emphasized: between 2000 and 2005."
    },
    {
      "heading": "Policy-relevant implications and consequences",
      "content": "- Increased competition in mortgage markets can amplify risk shifting incentives for banks, particularly where house price volatility is high.\n- Areas with competitive mortgage markets facing high expected house price volatility experienced larger loosening of lending standards, with measurable adverse real-sector outcomes during the financial crisis (higher local unemployment)."
    },
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      "heading": "Publication and metadata",
      "content": "- Author: Alan Xiaochen Feng\n- Publication date: July 6, 2018\n- Series: IMF Working Papers; Working Paper No. 2018/157; Issue: 157; Volume: 2018\n- Pages: 46\n- DOI: https://doi.org/10.5089/9781484364024.001\n- Stock No: WPIEA2018157\n- ISBN: 9781484364024\n- ISSN: 1018-5941\n- Subjects and keywords: Banking; Competition; Financial institutions; Financial markets; Housing; Housing prices; Loans; Mortgages; National accounts; Prices; bank competition; bank concentration; bank-competition-instability relationship; Competition; Herfindahl index; house price volatility; Housing; mortgage market; mortgage portfolio; risk taking; unemployment; WP\n\nSource: IMF Working Paper \"Bank Competition, Risk Taking, and their Consequences: Evidence from the U.S. Mortgage and Labor Markets\" by Alan Xiaochen Feng, July 6, 2018.\n\n---\n\n Content in this bundle\n\n- wp18157\n  - wp18157 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp18157 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2018/07/06/bank-competition-risk-taking-and-their-consequences-evidence-from-the-u-s-46034"
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    "Authors: Alan Xiaochen Feng",
    "Published: July 6, 2018",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484364024.001",
    "Bank competition can induce excessive risk taking due to risk shifting.",
    "Using micro-level U.S. mortgage data and exploiting exogenous variation in local house price volatility, the paper tests this hypothesis.",
    "The paper finds that, in response to high expected house price volatility, banks in U.S. counties with a competitive mortgage market lowered lending standards by \"twice as much\" as those with concentrated markets between 2000 and 2005.",
    "This pattern of risk taking was associated with real economic outcomes during the financial crisis, including higher unemployment rates in local real sectors.",
    "Empirical approach exploits exogenous variation in local house price volatility.",
    "Micro-level U.S. mortgage data are the primary data source.",
    "Time period emphasized: between 2000 and 2005.",
    "Increased competition in mortgage markets can amplify risk shifting incentives for banks, particularly where house price volatility is high.",
    "Areas with competitive mortgage markets facing high expected house price volatility experienced larger loosening of lending standards, with measurable adverse real-sector outcomes during the financial crisis (higher local unemployment).",
    "Author: Alan Xiaochen Feng",
    "Publication date: July 6, 2018",
    "Series: IMF Working Papers; Working Paper No. 2018/157; Issue: 157; Volume: 2018",
    "Pages: 46",
    "DOI: https://doi.org/10.5089/9781484364024.001",
    "Stock No: WPIEA2018157",
    "ISBN: 9781484364024",
    "ISSN: 1018-5941",
    "Subjects and keywords: Banking; Competition; Financial institutions; Financial markets; Housing; Housing prices; Loans; Mortgages; National accounts; Prices; bank competition; bank concentration; bank-competition-instability relationship; Competition; Herfindahl index; house price volatility; Housing; mortgage market; mortgage portfolio; risk taking; unemployment; WP",
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