Switching costs and financial stability

Rune Stenbacka, Tuomas Takalo

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We establish that the effect of intensified deposit market competition, measured by reduced switching costs, on the probability of bank failures depends critically on whether we focus on competition with established customer relationships or competition for the formation of such relationships. With inherited customer relationships, intensified competition due to lower switching costs destabilizes the banking market, whereas it stabilizes the market if we focus on competition for the formation of customer relationships. We characterize the factors important for evaluating the effects of intensified competition on stability in a market with unattached as well as locked-in depositors.
Original languageEnglish
Article numberJFS 657
Peer-reviewed scientific journalJournal of financial stability
Volume41
Pages (from-to)14-24
Number of pages11
ISSN1572-3089
DOIs
Publication statusPublished - 31.01.2019
MoE publication typeA1 Journal article - refereed

Keywords

  • 512 Business and Management
  • Deposit market competition
  • Financial stability
  • Bank failures
  • Switching cost
  • Competition versus stability tradeoff

Fingerprint Dive into the research topics of 'Switching costs and financial stability'. Together they form a unique fingerprint.

  • Cite this