Market power and risk-taking of banks: Some semiparametric evidence from emerging economies

We investigate the impact of market power of banks on their risk-taking. Appling bank-level data from 35 emerging economies during the period of 2000-2014 to our semiparametric model of the market power-bank risk nexus with the Bayesian inference, we present consistent evidence that there is a significant nonlinear relationship between market power and risk-taking of banks. Bank stability is found bolstered with increasing market power, but this relationship tends to weaken and even reverse as banks' market power grow further over a threshold level.