Competition can boost macro-financial stability, research finds
Risk to individual banks rises with competition but systemic risk falls
Competition in the European banking sector increases risk-taking by individual banks but decreases the overall systemic risk, a working paper published this month by the Bank of Lithuania argues.
In Is there a competition-stability trade-off in European banking? Aurélien Leroy and Yannick Lucotte estimate the individual and systemic risk posed by 54 European banks between 2004 and 2013.
The authors use two proxies for individual risk for each bank, distance-to-default and the Z-score, while they
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