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Banking competition induces an efficient outcome but may also induce risk-taking behaviour that reduces solvency. This study examines the relationship between efficiency and solvency in banking at the empirical level. The empirical findings support that greater efficiency with respect to a risk–return frontier leads to a greater solvency level, but solvency is not related to efficiency. So, an increase in banking competition generates both more efficiency and solvency.
Juan C. Reboredo (2004) studied this question.