Switching costs and financial stability
Stenbacka, Rune; Takalo, Tuomas (2019)
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Stenbacka, Rune
Takalo, Tuomas
Elsevier
2019
Kuvaus
peerReviewed
Tiivistelmä
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.
JEL
G21, D43
Avainsanat
Deposit market competition, Financial stability, Bank failures, Switching cost, Competition versus stability tradeoff