Bank competition, financial stability and welfare: does the objective function of competitors matter?
Óscar Ramón Ramos Gutiérrez & Mónica López-Puertas
What the paper says
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.
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.50 × 0.4 = 0.20 |
| M · momentum | 0.50 × 0.15 = 0.07 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.