Competition and stability: what's special about banking?

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Competition and stability: what's special about banking?

Author Info

Philipp Hartmann () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
Elena Carletti () (Center for Financial Studies, Taunusanlage 6, 60329 Frankfurt am Main, Germany.)

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Philipp Hartmann

Abstract

This paper examines the relationship between competition policies and policies to preserve stability in the banking sector. Market structures and the relative importance of the three classical antitrust areas for banking are discussed, showing the predominance of merger review considerations for loan and deposit markets as well as the relevance of cartel considerations for payment systems. A core part of the paper is an analysis of the relative roles of competition and supervisory authorities in the review of bank mergers for the G-7 industrialised countries. A wide variety of approaches emerges, with some countries giving a stronger role to prudential supervisors than to competition authorities and other countries doing it the other way round. In search for explanations for this diversity the theoretical and empirical literature on the competition-stability nexus in banking is surveyed. It turns out that the widely accepted trade-off between competition and stability does not generally hold. JEL Classification: G21; G28; G34; K21; L4.

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Paper provided by European Central Bank in its series Working Paper Series with number 146.

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Length: 50 pages
Date of creation: May 2002
Date of revision:
Handle: RePEc:ecb:ecbwps:20020146

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Paper
- Philipp Hartmann & Elena Carletti, 2002. "Competition and Stability: What's Special about Banking?," FMG Special Papers sp140, Financial Markets Group. [Downloadable!] (restricted)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Berger, Allen N & Hannan, Timothy H, 1989. "The Price-Concentration Relationship in Banking," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 291-99, May. [Downloadable!] (restricted)
Other versions:
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Michael D. Bordo & Hugh Rockoff & Angela Redish, 1996. "A Comparison of the United States and Canadian Banking Systems in the Twentieth Century: Stability vs. Efficiency?," NBER Working Papers 4546, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Franklin Allen & Douglas Gale, 2001. "Financial Contagion," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 1-33, February. [Downloadable!] (restricted)
Other versions:
- Allen, Franklin & Gale, Douglas, 1998. "Financial Contagion," Working Papers 98-33, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
- Franklin Allen & Douglas Gale, 1999. "Financial Contagion," Levine's Working Paper Archive 2092, David K. Levine. [Downloadable!]
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Other versions:
- W. Bolt & A.F. Tieman, 2001. "Banking competition, risk and regulation," DNB Staff Reports (discontinued) 70, Netherlands Central Bank. [Downloadable!]
- Wilko Bolt & Alexander F. Tieman, 2004. "Banking Competition, Risk, and Regulation," IMF Working Papers 04/11, International Monetary Fund. [Downloadable!]
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Benston, George J & Hunter, William C & Wall, Larry D, 1995. "Motivations for Bank Mergers and Acquisitions: Enhancing the Deposit Insurance Put Option versus Earnings Diversification," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 777-88, August. [Downloadable!] (restricted)
Elena Carletti, 1999. "Bank Moral Hazard and Market Discipline," FMG Discussion Papers dp326, Financial Markets Group. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Stijn Claessens, 2009. "Competition in the Financial Sector: Overview of Competition Policies," IMF Working Papers 09/45, International Monetary Fund. [Downloadable!]
Other versions:
- Stijn Claessens, 2009. "Competition in the Financial Sector: Overview of Competition Policies," World Bank Research Observer, Oxford University Press, vol. 24(1), pages 83-118, April. [Downloadable!] (restricted)
Klüh, Ulrich, 2005. "Safety Net Design and Systemic Risk: New Empirical Evidence," Discussion Papers in Economics 662, University of Munich, Department of Economics. [Downloadable!]
Kari Kemppainen, 2004. "Competition and regulation in European retail payment systems," Microeconomics 0404008, EconWPA. [Downloadable!]
Gianni De NicolÃ³ & John H. Boyd, 2003. "Bank Risk-Taking and Competition Revisited," IMF Working Papers 03/114, International Monetary Fund. [Downloadable!]
Rajan, Raghuram G & Zingales, Luigi, 2003. "Banks and Markets: the Changing Character of European Finance," CEPR Discussion Papers 3865, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Luigi Zingales & Raghuram G. Rajan, 2003. "Banks and Markets: The Changing Character of European Finance," NBER Working Papers 9595, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Liliane Karlinger, 2002. "The Impact of Common Currencies on Financial Markets: A Literature Review and Evidence from the Euro Area," Working Papers 02-35, Bank of Canada. [Downloadable!]
Elena Carletti & Philipp Hartmann & Giancarlo Spagnolo, 2003. "Bank mergers, competition and liquidity," Working Paper Series 292, European Central Bank. [Downloadable!]
Other versions:
- Carletti, Elena & Hartmann, Philipp & Spagnolo, Giancarlo, 2004. "Bank Mergers, Competition and Liquidity," CEPR Discussion Papers 4260, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Carletti, Elena & Hartmann, Philipp & Spagnolo, Giancarlo, 2005. "Bank Mergers, Competition and Liquidity," Working Paper Series 182, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
- Elena Carletti & Philipp Hartmann & Giancarlo Spagnolo, 2007. "Bank Mergers, Competition, and Liquidity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1067-1105, 08. [Downloadable!] (restricted)
- Elena Carletti & Philipp Hartman & Giancarlo Spagnolo, 2003. "Bank mergers, competition, and liquidity," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 89-99.
Vesala , Timo, 2004. "Asymmetric information in credit markets and entrepreneurial risk taking," Research Discussion Papers 14/2004, Bank of Finland. [Downloadable!]
Hakenes, Hendrik & Schnabel, Isabel, 2004. "Banks without Parachutes -- Competitive Effects of Government Bail-out Policies," Sonderforschungsbereich 504 Publications 04-53, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
Other versions:
- Hendrik Hakenes & Isabel Schnabel, 2004. "Banks without Parachutes – Competitive Effects of Government Bail-out Policies," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2004_12, Max Planck Institute for Research on Collective Goods. [Downloadable!]
- Hendrik Hakenes & Isabel Schnabel, 2004. "Banks without Parachutes - Competitive Effects of Government Bail-out Policies," Discussion Papers 8, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
Giovanni B. Ramello & Donatella Porrini, 2004. "Competition in Banking: Switching Costs and the Limits of Antitrust Enforcement," LIUC Papers in Economics 153, Cattaneo University (LIUC). [Downloadable!]
Andrea M. Maechler & Sandra Marcelino & Paulo Flavio Nacif Drummond, 2007. "Italy-Assessing Competition and Efficiency in the Banking System," IMF Working Papers 07/26, International Monetary Fund. [Downloadable!]
Degryse, H.A. & Nguyen, G., 2004. "Interbank exposures : an empirical examination of systemic risk in the Belgian banking system," Discussion Paper 4, Tilburg University, Center for Economic Research. [Downloadable!]
Other versions:
- Hans Degryse & Grégory Nguyen, 2004. "Interbank exposures: an empirical examination of systemic risk in the Belgian banking system," Research series 200403, National Bank of Belgium. [Downloadable!]
Gabriel Jiménez & Jose A. Lopez & Jesús Saurina, 2007. "How does competition impact bank risk-taking?," Working Paper Series 2007-23, Federal Reserve Bank of San Francisco. [Downloadable!]
J.A. Bikker & A.A.T. Wesseling, 2003. "Intermediation, integration and internationalisation: a survey on banking in Europe," Research Series Supervision (discontinued) 53, Netherlands Central Bank, Directorate Supervision. [Downloadable!]
Thorsten Beck & Asli Demirguc-Kunt & Ross Levine, 2005. "Bank Concentration and Fragility: Impact and Mechanics," NBER Working Papers 11500, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Thorsten Beck, 2007. "Bank Concentration and Fragility. Impact and Mechanics," NBER Chapters, in: The Risks of Financial Institutions, pages 193-234 National Bureau of Economic Research, Inc. [Downloadable!]
Beck, Thorsten, 2008. "Bank competition and financial stability : friends or foes ?," Policy Research Working Paper Series 4656, The World Bank. [Downloadable!]

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