How Market Power Influences Bank Failures Evidence from Russia
AbstractThere has been a notable debate in the banking literature on the impact of bank competition on financial stability. While the dominant view sees a detrimental impact of competition on the stability of banks, this view has recently been challenged by Boyd and De Nicolo (2005) who see the reverse effect. The aim of this paper is to contribute to this literature by providing the first empirical investigation of the role of bank competition on the occurrence of bank failures. We analyze this issue based on a large sample of Russian banks over the period 2001-2007 and in line with the previous literature we employ the Lerner index as the metric of bank competition. Our findings clearly support the view that tighter bank competition enhances the occurrence of bank failures. The normative implication of our findings is therefore that measures that increase bank competition could undermine financial stability.
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Bibliographic InfoPaper provided by Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg in its series Working Papers of LaRGE Research Center with number 2010-08.
Date of creation: 2010
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Bank competition; bank failure; Russia.;
Other versions of this item:
- Fungacova, Zuzana & Weill, Laurent, 2009. "How market power influences bank failures: Evidence from Russia," BOFIT Discussion Papers 12/2009, Bank of Finland, Institute for Economies in Transition.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-03 (All new papers)
- NEP-BAN-2010-07-03 (Banking)
- NEP-CIS-2010-07-03 (Confederation of Independent States)
- NEP-COM-2010-07-03 (Industrial Competition)
- NEP-FMK-2010-07-03 (Financial Markets)
- NEP-REG-2010-07-03 (Regulation)
- NEP-TRA-2010-07-03 (Transition Economics)
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