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Competition in the Financial Sector

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Author Info

  • Stijn Claessens

Abstract

As in other sectors, competition in finance matters for allocative, productive and dynamic efficiency. Theory suggests, however, that unfettered competition is not first best given the special features of finance. I review these analytics and describe how to assess the degree of competition in markets for financial services. Existing research shows that the degree of competition greatly varies across markets, largely driven by barriers to entry and exit. I argue that changes in financial services industries require updated competition policies and institutional arrangements, but that practices still fall short. Furthermore, I show that developing countries face some specific competition challenges.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/45.

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Length: 20
Date of creation: 01 Mar 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/45

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Keywords: Emerging markets; Financial sector; Financial institutions; Securities regulations; Economic models; competition; financial services; competition policy; degree of competition; services industries; market structure; foreign bank; foreign banks; increased competition; competition issues; monopoly; application of competition; entry barriers; services providers; financial stability; monopolistic competition; anti-competitive behavior; mergers; banking services; determinants of competition; competition policies; regulatory regimes; perfect competition; insurance companies; competition agencies; competition authority; regulatory barriers; regulatory burden; need for competition policy; foreign competition; lower concentration; service sectors; foreign entry; market concentration; technological progress; full competition; competitive structure; services industry; imperfect competition; distribution networks; monopoly power; social welfare; foreign ownership; entry restrictions; competition concerns; market competition; natural monopoly; comparative advantage; incumbent firm; services liberalization; regulatory approaches; preferential access; auxiliary services; universal service obligations; universal service; competitive conditions;

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References

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Citations

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Cited by:
  1. Bana Abuzayed & Nedal Al-Fayoumi & Hisham Gharaibeh, 2012. "Competition in MENA countries banking markets," International Journal of Financial Services Management, Inderscience Enterprises Ltd, Inderscience Enterprises Ltd, vol. 5(3), pages 272-301.
  2. Stijn Claessens & M. Ayhan Kose & Marco E. Terrones, 2010. "The Global Financial Crisis:How Similar? How Different? How Costly?," Koç University-TUSIAD Economic Research Forum Working Papers, Koc University-TUSIAD Economic Research Forum 1011, Koc University-TUSIAD Economic Research Forum.
  3. Bing Xu & Adrian Van Rixtel & Michiel Van Leuvensteijn, 2013. "Measuring bank competition in China: a comparison of new versus conventional approaches applied to loan markets," BIS Working Papers 422, Bank for International Settlements.
  4. Hasan, Iftekhar & Marinc , Matej, 2013. "Should competition policy in banking be amended during crises? Lessons from the EU," Research Discussion Papers, Bank of Finland 7/2013, Bank of Finland.
  5. Chun-Yu Ho, 2010. "Deregulation, competition and consumer welfare in a banking market: evidence from Hong Kong," Journal of Regulatory Economics, Springer, Springer, vol. 37(1), pages 70-97, February.
  6. Lee, Chien-Chiang & Yang, Shih-Jui & Chang, Chi-Hung, 2014. "Non-interest income, profitability, and risk in banking industry: A cross-country analysis," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 27(C), pages 48-67.
  7. Yu Sun, 2011. "Recent Developments in European Bank Competition," IMF Working Papers 11/146, International Monetary Fund.
  8. Olivero, María Pía & Li, Yuan & Jeon, Bang Nam, 2011. "Competition in banking and the lending channel: Evidence from bank-level data in Asia and Latin America," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(3), pages 560-571, March.
  9. Jeon, Bang Nam & Olivero, María Pía & Wu, Ji, 2011. "Do foreign banks increase competition? Evidence from emerging Asian and Latin American banking markets," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(4), pages 856-875, April.
  10. Pérez Montes, Carlos, 2014. "The effect on competition of banking sector consolidation following the financial crisis of 2008," Journal of Banking & Finance, Elsevier, Elsevier, vol. 43(C), pages 124-136.

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