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 language | English |
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Article number | JFS 657 |
Peer-reviewed scientific journal | Journal of Financial Stability |
Volume | 41 |
Pages (from-to) | 14-24 |
Number of pages | 11 |
ISSN | 1572-3089 |
DOIs | |
Publication status | Published - 31.01.2019 |
MoE publication type | A1 Journal article - refereed |
Keywords
- 512 Business and Management
- Deposit market competition
- Financial stability
- Bank failures
- Switching cost
- Competition versus stability tradeoff