c) Implications for financial stability Digital financial innovation and the entry of new providers of financial services may not only affect productivity and eﬃciency but may also have important consequences for financial stability. In financial services, unlike in other industries, increased competition may not be welfare enhancing (Corbae and Levine 2018).
Instead, the link between competition and risk in banking is non-linear (Martinez-Miera and Repullo 2010): A low degree of competition generates monopoly rents which the bank manager wants to protect by investing in safe assets (Keeley 1990). Accordingly, risk would increase if competition becomes more intense.