Competition, Risk Taking and Efficiency in the US Commercial Banks Prior to 2008 Financial Crisis

21 Pages Posted: 11 Feb 2012

See all articles by Mohammed Ershad Hussain

Mohammed Ershad Hussain

Dillard University

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Date Written: February 10, 2012

Abstract

The purpose of the current paper is to examine the level (degree) of competition, risk-taking behavior and efficiency with respect to the US commercial banks (large, medium, and small). The Lerner Index is used to measure competition in the US banking sector. In the next step, the Gruben et al (2003) simultaneous equations model tests for Risk-Taking Behavior of commercial banks. Then, the Stochastic Frontier Approach (SFA) is used to measure bank competition. In the final step, we study the relation between efficiency and competition. All of these models reveal information that is vital to understanding one of the key areas of bank behavior, namely bank risk taking. We collect data from 2003 to 2007, prior to the financial meltdown.

Suggested Citation

Hussain, Mohammed Ershad and Hassan, M. Kabir, Competition, Risk Taking and Efficiency in the US Commercial Banks Prior to 2008 Financial Crisis (February 10, 2012). Available at SSRN: https://ssrn.com/abstract=2003066 or http://dx.doi.org/10.2139/ssrn.2003066

Mohammed Ershad Hussain (Contact Author)

Dillard University ( email )

2601 Gentilly Blvd
New Orleans, LA 70122
United States
5043440568 (Phone)

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

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