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Price Competition, Efficiency and Riskiness in Investment Banking

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Radić, Nemanja, Fiordelisi, Franco and Girardone, Claudia (2011) Price Competition, Efficiency and Riskiness in Investment Banking. Centre for EMEA Banking Finance and Economics working paper series, 2011 (07). pp. 1-27.

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Abstract

The recent financial crisis has shown that the stability of the investment banking industry plays a key role for the soundness of the financial system as a whole. Our paper examines the intertemporal relationships between price competition, cost efficiency and riskiness for a sample of investment banks inten large developed countries over 2000-2008.We show that price competition is rather limited in investment banking worldwide thus implying the existence of colluding oligopolies.We also find that although investment banks’ stability was granted by relatively low competitive pressures, banks appeared prone to take more risk thus giving some support to the competition-stability view for the investment banking industry.

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