This paper examines the relationship between bank competition and financial stability, testing two competing views: the "competition-fragility" view, which suggests that more competition reduces bank risk by eroding market power and profit margins, and the "competition-stability" view, which argues that greater market power may increase bank risk due to higher interest rates and moral hazard. Using data on 8,235 banks in 23 developed nations, the authors regress measures of loan risk, bank risk, and equity capital on indicators of market power and business environment. The results support the "competition-fragility" view, showing that banks with greater market power have lower overall risk exposure. However, the data also provide some support for the "competition-stability" view, indicating that market power increases loan portfolio risk. The authors argue that this risk may be offset by higher equity capital ratios. The study also finds that banks with more market power tend to hold more equity capital, suggesting that they manage risk through capitalization. The results suggest that while market power can lead to riskier loan portfolios, banks may mitigate this risk through other means, leading to overall financial stability. The study highlights the importance of considering both loan risk and overall bank risk when analyzing the effects of market power on financial stability.This paper examines the relationship between bank competition and financial stability, testing two competing views: the "competition-fragility" view, which suggests that more competition reduces bank risk by eroding market power and profit margins, and the "competition-stability" view, which argues that greater market power may increase bank risk due to higher interest rates and moral hazard. Using data on 8,235 banks in 23 developed nations, the authors regress measures of loan risk, bank risk, and equity capital on indicators of market power and business environment. The results support the "competition-fragility" view, showing that banks with greater market power have lower overall risk exposure. However, the data also provide some support for the "competition-stability" view, indicating that market power increases loan portfolio risk. The authors argue that this risk may be offset by higher equity capital ratios. The study also finds that banks with more market power tend to hold more equity capital, suggesting that they manage risk through capitalization. The results suggest that while market power can lead to riskier loan portfolios, banks may mitigate this risk through other means, leading to overall financial stability. The study highlights the importance of considering both loan risk and overall bank risk when analyzing the effects of market power on financial stability.