Deregulation, market power and risk behaviour in Spanish banks

State-Aid, Stability and Competition in European Banking

“…Competition is associated with higher liquidity risk: when the mark-up over marginal cost is higher, the opportunity-cost of liquid assets is also higher. In contrast with the theoretical predictions of Boyd and de Nicolò (2005) and in-line with earlier empirical work (Demsetz et al, 1996;Salas and Saurina, 2003), we find that higher market power is associated with lower levels of provisioning and higher coverage ratios for non-performing loans. As expected, over the crisis period, banks experienced an increase in their overall risk of insolvency compared to the previous period (2005)(2006)(2007) as denoted by the negative value in the dummy variable for the crisis (Table 7, Column 1).…”

Macroprudential regulation and bank performance: Does ownership matter?

“…According to the first strand, the impact of financial deregulation is typically assessed either through a dummy variable (Salas and Saurina, 2003) or simply examining the behavior of banks during periods of financial deregulation (Das and Ghosh, 2006). The findings indicate that the impact of deregulation on bank behavior depends, among others, on the state of the banking system and differs significantly across bank ownership.…”

Macroeconomic factors influence on mortgage interest rate type demand

“…Competition encourages pursuing riskier policies in attempt to maintain profits (Keeley, 1990). Empirical investigations (Demsetz et al, 1996;Hellmann et al, 2000;Salas, Saurina, 2003;Bofondi, Gobbi, 2004) show that measures of bank risk are correlated with market power. Increasing competition should increase share of riskier (i.e., shortterm interest rate) loans.…”