Abstract
This paper examines the relationship between banking market structure and financial stability. Using data on thrifts, a type of banking institution specializing in residential mortgage lending, I test two related hypotheses. First, competition reduces franchise value. Second, reduced franchise value induces risk taking. Testing the second hypothesis exploits predictions that when hit by an exogenous shock, the slope of risk with respect to franchise value becomes more negative because thrifts adopt bang-bang strategies and choose minimal or maximal risk. Using the Texas real estate collapse in the 1980s as a natural experiment, I find evidence supporting both hypotheses.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
