Abstract
This paper investigates the relation between risk taking and market power in the US banking sector by introducing the effect of geographical spillovers caused by the transmission of risk taking among banks. For this purpose, we use spatial econometrics. Our results support a negative relation between risk taking and market power. The transmission of risk taking causes significant geographical spillovers, which increases the magnitude of the relation under analysis here. Moreover, the spillover effect is found to be stronger during the Subprime-crisis period when we noted an increased in the transmission of risk taking of banks.
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