Bank structure, competition and financial stability.

Summary The global economic crisis of 2007-2012, often compared to the Great Depression, revealed that the European banking system, in particular, is dominated by banks that are too big, too complex and too connected to fail. Because of their systemic status, these banks have the advantage of lower financing costs, which not only distorts competition but also creates moral hazard problems in terms of the incentives to increase their size. With this in mind, the objective of this thesis is to analyze how the distortion of the market structure, the structure of banks and the risk pricing problems they induce affect financial stability. It is structured in four chapters. In chapter 1, we show that an increase in the probability of individual default increases the contribution of banks to systemic risk. In chapter 2, we show that the implicit subsidy has the potential to decrease but also to reverse the systemic risk-reducing effect of increased competition. In Chapter 3, we show that the implicit subsidy has the potential to distort and, beyond a certain threshold, to reverse the individual risk-increasing effect of increased competition. Together, these results support the consensus that individual risk and systemic risk generated by banks have two distinct dimensions. In chapter 4, we provide evidence that large financial institutions identified as systemic and benefiting from the implicit subsidy contribute more to systemic risk when they have an increased reliance on wholesale liquidity funding.