How does bank capital affect the relationship between bank concentration and risk taking? I develop a tractable dynamic model with heterogeneous financially constrained entrepreneurs and an imperfectly competitive banking sector. Based on the model, when the bank capital ratio exceeds the...

During the last thirty years, U.S. bank concentration has been growing over time, as has bank capital ratio, which has been rising and already well above the minimum capital requirement. To explain these findings, I develop a tractable dynamic model with two key elements: financial constrained...