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How does competition in the banking market affect the risk-exposure of the banks' loan portfolios? From a theoretical model we predict that dampened competition may give the banks incentives to accept more borrowers and thereby to take a larger risk on its portfolio. Using a panel of accounting data for Norwegian banks over the last 20 years, the relationship between the rate of non-performing loans and different measures of competition is analysed. We find a U-shaped relationship betweenfatcat:5ldwg6dt25hxlfiicz5g7kr7jy