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Bank Competition and Credit Risk in Euro Area Banking: Fragmentation and Convergence Dynamics

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  • Maria Karadima

    (Department of Economics, Athens University of Economics and Business, 76 Patission Street, GR-10434 Athens, Greece)

  • Helen Louri

    (Department of Economics, Athens University of Economics and Business, 76 Patission Street, GR-10434 Athens, Greece
    European Institute/Hellenic Observatory, London School of Economics, Houghton Street, London WC2A 2AE, UK)

Abstract

Consolidation in euro area banking has been the major trend post-crisis. Has it been accompanied by more or less competition? Has it led to more or less credit risk? In all or some countries? In this study, we examine the evolution of competition (through market power and concentration) and credit risk (through non-performing loans) in 2005–2017 across all euro area countries (EA-19), as well as core (EA-Co) and periphery (EA-Pe) countries separately. Using Theil inequality and convergence analysis, our results support the continued existence of fragmentation as well as of divergence within and/or between core and periphery with respect to competition and credit risk, especially post-crisis, in spite of some partial reintegration trends. Policy measures supporting faster convergence of our variables would be helpful in establishing a real banking union.

Suggested Citation

  • Maria Karadima & Helen Louri, 2020. "Bank Competition and Credit Risk in Euro Area Banking: Fragmentation and Convergence Dynamics," JRFM, MDPI, vol. 13(3), pages 1-28, March.
    • Handle: RePEc:gam:jjrfmx:v:13:y:2020:i:3:p:57-:d:333051
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    Cited by:

    1. Mike G. Tsionas, 2020. "Remarks on Bank Competition and Convergence Dynamics," JRFM, MDPI, vol. 13(5), pages 1-5, May.
    2. Coccorese, Paolo & Girardone, Claudia & Shaffer, Sherrill, 2021. "What affects bank market power in the euro area? A country-level structural model approach," Journal of International Money and Finance, Elsevier, vol. 117(C).
    3. Tibor Tatay & Zsanett Orlovits & Zsuzsanna Novák, 2022. "Inhomogeneous Financial Markets in a Low Interest Rate Environment—A Cluster Analysis of Eurozone Economies," Risks, MDPI, vol. 10(10), pages 1-22, October.
    4. Maria Karadima & Helen Louri, 2020. "Reply to “Remarks on Bank Competition and Convergence Dynamics”," JRFM, MDPI, vol. 13(6), pages 1-6, June.

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