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On the optimality of bank competition policy

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  • Samantas, Ioannis G.

Abstract

This study examines whether the effect of market structure on financial stability is persistent, subject to current regulation and supervision policies. The methodology of Sala-I-Martin (1997) is employed over a sample of 2450 banks operating within the EU-27 during the period 2003–2010. The results show a potential trade-off between market power and soundness, and how possible it is to regulate this trade-off above 21% markups. Financial stability appears more pronounced in markets of less concentration, where policies lean towards limited restrictions on non-interest income, official intervention in bank management and book transparency. Regulation and competition can act as substitute or complementary policies vis-à-vis a more stable financial system with less competition distortions.

Suggested Citation

  • Samantas, Ioannis G., 2017. "On the optimality of bank competition policy," International Review of Financial Analysis, Elsevier, vol. 54(C), pages 39-53.
    • Handle: RePEc:eee:finana:v:54:y:2017:i:c:p:39-53
    DOI: 10.1016/j.irfa.2017.09.005
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    3. Panayotis D. Alexakis & Ioannis G. Samantas, 2018. "Foreign ownership and market power: the special case of European banks," Working Papers 242, Bank of Greece.
    4. Dan Costin NIȚESCU & Cristian ANGHEL, 2022. "International banking, crises and strategic interests," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(631), S), pages 5-24, Summer.

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    More about this item

    Keywords

    Market power; Financial stability; Regulation; Extreme bound analysis;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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