More banking competition produces mixed results

A u-shaped relationship exists between competition and the risk of bank failure, research published by the Centre for Economic Policy and Research (CEPR) finds.

A large amount of theoretical literature has indicated that competition reduces banks' franchise values and induces them to take more risk. However, recent research has contradicted this, finding instead that when banks charge lower rates, borrowers have an incentive to choose safer investments, so the institutions themselves will be

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