<!-- generated: provider=openrouter model=arcee-ai/trinity-large-preview:free date=2026-02-19 source=book-2-chapter-02 -->

# Bank Competition Effects

## Definition

The impact of multiple banks competing in the same market, which tends to promote prudence, efficiency, and better service to customers while reducing the risk of systemic failure through diversification.

## Source Chapter

Book II, Chapter 2

## Context

Smith argues that competition among banks promotes stability and efficiency by forcing banks to be more circumspect in their operations and to provide better service to customers. He sees competition as a natural regulator of banking practice.

## Economic Domain

Regulation

---
