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We develop a model of equilibrium entry, trade, and price formation in over-the- counter (OTC) markets. Banks trade derivatives to share an aggregate risk subject to two trading frictions: they must pay a fixed entry cost, and they must limit the size of the positions taken by their traders...
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Banking across borders has risen substantially over the past two decades. Yet there is significant heterogeneity in the international and global activities of banks across countries. This paper develops and tests a theoretical model that explains this variation from an international trade theory...
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This unique study examines the interactive role of bank competition and foreign bank entry in explaining the risk … model and Two-stage Least Squares model (2SLS with Generalized Method of Moments GMM), we document that foreign bank entry … stability. Furthermore, the joint effect of bank competition and foreign bank entry brings financial fragility because host …
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