Competition Between Banks with Different Ownership Structure: Implications for Performance, Risk and Welfare
40 Pages Posted: 27 Jun 2012
Date Written: June 1, 2012
Abstract
This paper analyses the effects of competition between banks with different ownership structures on financial stability, social welfare, risk-taking incentives and performance. Specifically, we present a model of strategic competition in the retail banking sector where a profit-maximizing bank, i.e., commercial bank competes against a non-for-profit maximizing bank, i.e., stakeholder bank.
Our main conclusions are that the presence of stakeholder banks increases systemic financial stability, social welfare, and banking competition. We also show that stakeholder banks are less risk-inclined and obtain a higher market share than commercial banks; and that any bank is less stable and less profitable when competing against a stakeholder bank. Our predictions are validated by the empirical evidence. Thus, our model contributes to the current debate on the future of stakeholder banks suggesting that policy makers worried about systemic financial stability may favor a stakeholder approach in the banking system.
Keywords: Ownership Structure, Risk-Taking, Systemic Financial Stability, Competition
JEL Classification: G21, G32, G18, G38
Suggested Citation: Suggested Citation
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