Does Banking Competition Enhance or Mitigate Risk? New Evidence from OECD Countries

The primary aim of the study is to question the relationship between competition and risk-taking behavior in banks in recent years when competition and risks have significantly differentiated and to provide new evidence. In addition, it is also aimed to question the impact of the level of financial development on the relationship between competition and risk. In this context, the study is the first of its kind in the literature. A comprehensive study was conducted with the data of 6,478 banks operating in OECD (Organisation for Economic Co-operation and Development) member countries for the period 2013-2021. According to the findings of the panel data analysis, obtained between competition and risk-taking behavior are consistent with the ‘Competition-stability’ view of Boyd and De Nicolo (2005). The results are also consistent with the ‘Non-linear’ view of Martinez- Miera and Repullo (2010), revealing a non-linear relationship between competition and risk-taking behavior, which is formed according to banks' actions by the position they have taken according to the situation of the sector.