Reflecting the opposing theoretical mechanisms, empirical studies find it diﬃcult to establish a clear relationship between competition and risk, and the link between risk and competition depends on the type of bank and the type of risk considered (Freixas and Ma 2014). Changing patterns of competition in the banking industry can have implications for financial stability that go beyond those for individual banks.
A mortgage bank relies wholly on issuance of mortgage bonds to finance its lending. A bank lends money for many different purposes – with and without collateral. A mortgage bank solely provides collateralised loans for purchase of property. A bank takes on many different types of risk. A mortgage bank practically only takes on credit risk.