The risk-and-return effects of US banking competition and securitization

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Using a sample of 104,771 bank-year end data of the US commercial banks, we investigate the impact of the joint interaction between bank competition and securitization on risk and profitability. Our main findings show that Lerner index has a negative impact on bank risk and a positive impact on bank profitability. We also find that securitization has a positive impact on bank profitability prior to the recent financial crisis. The interaction between competition and securitization is found to have a negative impact on bank profitability and a positive impact on bank risk prior, during and after the crisis. Our paper emphasizes empirically the importance of the regulations restricting the recent expansion of bank competition, and provides new insights into the effects of competition and securitization on banks’ risk and return.

Author(s):

Antonio Bayeh    
University of Grenoble Alpes
France

Radu Burlacu    
University of Grenoble Alpes
France