This paper investigates the implications for financial stability, social welfare, risk-taking incentives and expected profits of competition between banks that differ in their respective objective function. We differentiate between commercial banks (i.e., shareholders’ profit-maximizing banks) and stakeholder banks (i.e., stakeholders’ welfare-maximizing banks), showing that: (1) The presence of stakeholder banks increases systemic financial stability and social welfare. (2) Stakeholder banks are less risk-inclined and obtain a higher market share than commercial banks. (3) Any bank chooses a riskier portfolio and is less profitable when competing against a stakeholder bank compared to competing against a commercial bank. Our theoretical findings are consistent with the existing empirical evidence and yield important policy implications and new empirically testable predictions.