Bank Competition, Risk Taking, and their Consequences: Evidence from the U.S. Mortgage and Labor Markets
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Summary:
Bank competition can induce excessive risk taking due to risk shifting. This paper tests this hypothesis using micro-level U.S. mortgage data by exploiting the exogenous variation in local house price volatility. The paper finds that, in response to high expected house price volatility, banks in U.S. counties with a competitive mortgage market lowered lending standards by twice as much as those with concentrated markets between 2000 and 2005. Such risk taking pattern was associated with real economic outcomes during the financial crisis, including higher unemployment rates in local real sectors.
Series:
Working Paper No. 2018/157
Subject:
Banking Competition Financial institutions Financial markets Housing Housing prices Loans Mortgages National accounts Prices
English
Publication Date:
July 6, 2018
ISBN/ISSN:
9781484364024/1018-5941
Stock No:
WPIEA2018157
Pages:
46
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