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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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
Date of revision:
Contact details of provider:
Postal: 61, Avenue de la Forêt Noire, F-67085 Strasbourg Cedex
Phone: (33) 3 90 41 41 30
Fax: (33) 3 90 41 40 50
Web page: http://ifs.unistra.fr/large
More information through EDIRC
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)
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.:
- Carbo, Santiago & Humphrey, David & Maudos, Joaquin & Molyneux, Philip, 2006.
"Cross-Country Comparisons of Competition and Pricing Power in European Banking,"
15258, University Library of Munich, Germany, revised 2006.
- Carbó, Santiago & Humphrey, David & Maudos, Joaquín & Molyneux, Philip, 2009. "Cross-country comparisons of competition and pricing power in European banking," Journal of International Money and Finance, Elsevier, vol. 28(1), pages 115-134, February.
- Humphrey David & Carbó Valverde Santiago & Maudos Villarroya Joaquín & Molyneux Philip, 2006. "Cross-Country Comparisons of Competition and Pricing Power in European Banking," Working Papers 201036, Fundacion BBVA / BBVA Foundation.
- Santiago Carbó Valverde & David Humphrey & Joaquin Maudos & Philip Molyneux, 2006. "Cross-country comparisons of competition and pricing power in European banking," Proceedings 1107, Federal Reserve Bank of Chicago.
- David Martinez-Miera & Rafael Repullo, 2010.
"Does Competition Reduce the Risk of Bank Failure?,"
Review of Financial Studies,
Society for Financial Studies, vol. 23(10), pages 3638-3664, October.
- Gianni De NicolÃ³ & Elena Loukoianova, 2007.
"Bank Ownership, Market Structure and Risk,"
IMF Working Papers
07/215, International Monetary Fund.
- Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006.
"Bank concentration, competition, and crises: First results,"
Journal of Banking & Finance,
Elsevier, vol. 30(5), pages 1581-1603, May.
- Beck, T.H.L. & Demirgüç-Kunt, A. & Levine, R., 2006. "Bank concentration, competition, and crises: First results," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125498, Tilburg University.
- David C. Wheelock & Paul W. Wilson, 2000.
"Why do Banks Disappear? The Determinants of U.S. Bank Failures and Acquisitions,"
The Review of Economics and Statistics,
MIT Press, vol. 82(1), pages 127-138, February.
- David C. Wheelock & Paul W. Wilson, 1995. "Why do banks disappear? The determinants of U.S. bank failures and acquisitions," Working Papers 1995-013, Federal Reserve Bank of St. Louis.
- Marco Arena, 2005.
"Bank Failures and Bank Fundamentals: A Comparative Analysis of Latin America and East Asia during the Nineties using Bank-Level Data,"
05-19, Bank of Canada.
- Arena, Marco, 2008. "Bank failures and bank fundamentals: A comparative analysis of Latin America and East Asia during the nineties using bank-level data," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 299-310, February.
- 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.
- Francisco Pérez García & Joaquín Maudos Villarroya & Juan Francisco Fernández de Guevara Radoselovics, 2002.
"Market Power In European Banking Sectors,"
Working Papers. Serie EC
2002-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- John H. Boyd & Gianni De Nicolã, 2005. "The Theory of Bank Risk Taking and Competition Revisited," Journal of Finance, American Finance Association, vol. 60(3), pages 1329-1343, 06.
- A. Karas & W. Pyle & K. Schoors, 2007.
"Sophisticated Discipline in a Nascent Deposit Market: Evidence from Post-Communist Russia,"
Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium
07/450, Ghent University, Faculty of Economics and Business Administration.
- Karas, Alexei & Pyle, William & Schoors, Koen, 2006. "Sophisticated discipline in a nascent deposit market: Evidence from post-communist Russia," BOFIT Discussion Papers 13/2006, Bank of Finland, Institute for Economies in Transition.
- Berger, Allen N. & Klapper, Leora F. & Turk-Ariss, Rima, 2008.
"Bank competition and financial stability,"
Policy Research Working Paper Series
4696, The World Bank.
- Solís, Liliana & Maudos, Joaquín, 2008. "The social costs of bank market power: Evidence from Mexico," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 467-488, September.
- Martin CihÃ¡k & Simon Wolfe & Klaus Schaeck, 2006. "Are More Competitive Banking Systems More Stable?," IMF Working Papers 06/143, International Monetary Fund.
- Caminal, Ramon & Matutes, Carmen, 2002. "Market power and banking failures," International Journal of Industrial Organization, Elsevier, vol. 20(9), pages 1341-1361, November.
- Claeys, Sophie & Schoors, Koen, 2007.
"Bank supervision Russian style: Evidence of conflicts between micro- and macroprudential concerns,"
Working Paper Series
205, Sveriges Riksbank (Central Bank of Sweden).
- Claeys, Sophie & Schoors, Koen, 2007. "Bank supervision Russian style: Evidence of conflicts between micro- and macro-prudential concerns," Journal of Comparative Economics, Elsevier, vol. 35(3), pages 630-657, September.
- Peresetsky, Anatoly A. & Karminsky, Alexandr A. & Golovan, Sergei V., 2004.
"Probability of default models of Russian banks,"
BOFIT Discussion Papers
21/2004, Bank of Finland, Institute for Economies in Transition.
- Glushkova, Ekaterina & Vernikov, Andrei, 2009. "How big is the visible hand of the state in the Russian banking industry?," MPRA Paper 15563, University Library of Munich, Germany.
- Matutes, Carmen & Vives, Xavier, 2000.
"Imperfect competition, risk taking, and regulation in banking,"
European Economic Review,
Elsevier, vol. 44(1), pages 1-34, January.
- Matutes, Carmen & Vives, Xavier, 1995. "Imperfect Competition, Risk Taking, and Regulation in Banking," CEPR Discussion Papers 1177, C.E.P.R. Discussion Papers.
- Maudos, Joaquin & Fernandez de Guevara, Juan, 2006. "The cost of market power in banking: social welfare loss vs. inefficiency cost," MPRA Paper 15253, University Library of Munich, Germany.
- Männasoo, Kadri & Mayes, David G., 2009. "Explaining bank distress in Eastern European transition economies," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 244-253, February.
- Olga Pak & Mira Nurmakhanova, 2013. "The Effect of Market Power on Bank Credit Risk-Taking and Bank Stability in Kazakhstan," Transition Studies Review, Springer, vol. 20(3), pages 335-350, November.
- Alexander Karminsky & Alexander Kostrov & Taras Murzenkov, 2012. "Comparison of default probability models: Russian experience," HSE Working papers WP BRP 06/FE/2012, National Research University Higher School of Economics.
- Jarko Fidrmuc & Philipp J. Süss, 2011.
"The Outbreak of the Russian Banking Crisis,"
Czech Economic Review,
Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 5(1), pages 046-063, March.
- Mikhail Mamonov, 2013. "Bad management, skimping, or both? The relationship between cost efficiency and loan quality in Russian banks," HSE Working papers WP BRP 19/FE/2013, National Research University Higher School of Economics.
- Elmas Yaldiz & Flavio Bazzana, 2010. "The effect of market power on bank risk taking in Turkey," Financial Theory and Practice, Institute of Public Finance, vol. 34(3), pages 297-314.
- Mamonov, Mikhail, 2012. "The impact of market power of Russian banks on their credit risk tolerance: A panel study," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 28(4), pages 85-112.
- Aadil Nakhoda, 2013.
"Bank Competition and Export Diversification,"
EERI Research Paper Series
EERI RP 2013/12, Economics and Econometrics Research Institute (EERI), Brussels.
- Małgorzata, 2011. "Competition in the Polish banking market prior to recent crisis for the period 1997–2007 – empirical results obtained with the use of three different models," Bank i Kredyt, National Bank of Poland, Economic Institute, vol. 42(5), pages 5-40.
- Zuzana Fungácová & Laurent Weill, 2014. "Understanding Financial Inclusion in China," Working Papers of LaRGE Research Center 2014-06, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
- Pestova Anna & Mamonov Mikhail, 2013. "Macroeconomic and bank?specific determinants of credit risk: evidence from Russia," EERC Working Paper Series 13/10e, EERC Research Network, Russia and CIS.
- Weill, Laurent, 2013.
"Bank competition in the EU: How has it evolved?,"
Journal of International Financial Markets, Institutions and Money,
Elsevier, vol. 26(C), pages 100-112.
- Horvath, Roman & Seidler, Jakub & Weill, Laurent, 2013. "How bank competition influence liquidity creation," BOFIT Discussion Papers 16/2013, Bank of Finland, Institute for Economies in Transition.
- Karminsky, A. & Kostrov, A., 2013. "Modeling the Default Probabilities of Russian Banks: Extended Abillities," Journal of the New Economic Association, New Economic Association, vol. 17(1), pages 64-86.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christophe J. Godlewski).
If references are entirely missing, you can add them using this form.