The impact of market power at bank level in risk-taking: The Brazilian case

Type Journal Article - International Review of Financial Analysis
Title The impact of market power at bank level in risk-taking: The Brazilian case
Author(s)
Volume 40
Publication (Day/Month/Year) 2015
Page numbers 154-165
URL http://sbfin.org.br/artigos-aceitos-15sbfin/econometria/5092.pdf
Abstract
This paper seeks to examine the competitive behavior of the Brazilian banking industry by conducting an analysis at the level of individual banks to gain an understanding of how the risk-taking behaviors of banks are a?ected by their degree of market power. Our results suggest that the Brazilian banking industry is characterized by monopolistic competition. Our foremost ?nding is that the market power of Brazilian banks is negatively related to their risk-taking behavior, regardless of changes in banks’ capital levels. Banks that experience a decline in market power, while simultaneously increasing their capital levels, tend to assume higher risk levels. After the Global Financial Crisis period, we ?nd that Private and Foreign banks became risk averse. We also verify that State-Owned banks engaged in riskier activities to increase their market share after the crisis. These results have important implications for the design of appropriate ?nancial regulations.

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