We examine the relation between intensity of competition in the loan market and risk of bank failure, in a model with adverse selection. As well established, the presence of the two opposite margin and risk-shifting effects creates conditions for nonmonotonicity: the conventional competition-fragility view may be challenged at high interest rates. These rates may however be too high to be compatible with oligopolistic equilibrium conditions. The challenging competition-stability view has been argued in terms of a representative borrower managing the profitability-safeness trade-off under moral hazard. However, the representative borrower assumption is not innocuous, playing down by construction the margin effect. The paper considers the adverse selection situation where that trade-off is managed by banks facing heterogeneous borrowers, and shows analytically, in the case of a trapezoidal distribution of idiosyncratic and systemic risk factors, that the conventional view is always valid.

中文翻译：

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竞争与银行倒闭风险：打破代表性借款人假设

我们在逆向选择模型中检验了贷款市场的竞争强度与银行倒闭风险之间的关系。众所周知，两种相反的边际效应和风险转移效应的存在为非单调性创造了条件：传统的竞争脆弱性观点可能在高利率下受到挑战。然而，这些比率可能太高而无法与寡头垄断平衡条件相容。有代表性的借款人在道德风险下管理盈利能力-安全性权衡，已经争论了具有挑战性的竞争-稳定性观点。然而，代表性借款人的假设并非无害，通过构造来淡化边际效应。本文考虑了逆向选择情况，即这种权衡由面临的银行管理。异质借款人，并分析表明，在特殊和系统性风险因素呈梯形分布的情况下，传统观点总是有效的。