An analysis on competitive advantage and risk-taking behaviors in banking

International literatures indicate that when commercial banks have advantages over market competition, their risk-taking incentives will show differences. By constructing a bank production function, the paper investigates the optimal risk choice for commercial banks that have competition advantage and we also take the banking regulation characteristics in China into accounted. The results find that, only the saving advantage or the loaning one can not determine a bank's risk-taking behaviors directly. And, interest rates for savings and loans as well as regulation policies will decide the bank's risk choice finally. At the same time, when external inspection is relaxed, more risk taking will not always profitable.