Revisiting the link between systemic risk and competition based on network theory and interbank exposures

Arbeitspapier

This paper examines the link between bank competition measures and risk indicators using quarterly interbank exposures data for all banks in Mexico during 2008Q1-2019Q1. The classical literature focuses on disentangling the link between competition and individual bank solvency risk. In this paper, we take one step forward in analyzing the relationship between competition and systemic risk. We use counterfactual bank-level contagion risk indicators as a proxy of systemic risk to assess their relationship with traditional competition measures. Our main finding indicates a negative relationship between the bank-level Lerner index and systemic risk. This means that an increase in competition is associated with an increase in systemic risk. Additionally, we find that the implementation of regulatory reform during the period studied does not affect this relationship.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Papers ; No. 2021-26

Classification and Topics

• Classification: Wirtschaft ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models ; Market Structure, Pricing, and Design: General ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation ; Transactional Relationships; Contracts and Reputation; Networks ; Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices ; Firm Organization and Market Structure
• Subject: Bank competition ; systemic risk ; financial contagion ; financial stability ; network models

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bátiz-Zuk, Enrique ; Lara-Sánchez, José L.
• Event: Veröffentlichung
• (who): Banco de México
• (where): Ciudad de México
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/251297
• Last update: 10.03.2025, 11:45 AM CET