Bank Competition and Personal Bankruptcy: Evidence from Large Bank Mergers

This paper studies the role of credit market competition in explaining consumer bankruptcy filings. I exploit variation in bank competition induced by large bank mergers to establish that personal bankruptcy rates are significantly higher in more competitive local banking markets. Higher competition prompts banks to take more risks by increasing credit supply and lowering their credit standards. Finally, using bank balance sheet data, I demonstrate that banks that operate in more competitive counties have higher credit supply and exhibit a greater loan loss rate, consistent with the bank risk-taking channel.