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Bank competition and financial stability : friends or foes ?

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  • Beck, Thorsten

Abstract

Theory makes ambiguous predictions about the relationship between market structure and competitiveness of the banking system and banking sector stability. Empirical studies focusing on individual countries provide similarly ambiguous results, while cross-country studies point mostly to a positive relationship between competition and stability in the banking system. Where liberalization and unfettered competition have resulted in fragility, this has been mostly the consequence of regulatory and supervisory failures. The advantages of competition for an efficient and inclusive financial system are strong, and regulatory and supervisory policies should focus on an incentive-compatible environment for banking rather than try to fine-tune market structure or the degree of competition.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4656.

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Date of creation: 01 Jun 2008
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Handle: RePEc:wbk:wbrwps:4656

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Keywords: Banks&Banking Reform; Access to Finance; Emerging Markets; Debt Markets; Labor Policies;

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References

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Citations

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Cited by:
  1. Beck, T.H.L. & De Jonghe, O.G. & Schepens, G., 2011. "Bank Competition and Stability: Cross-country Heterogeneity (Replaced by CentER DP 2012-085)," Discussion Paper, Tilburg University, Center for Economic Research 2011-080, Tilburg University, Center for Economic Research.
  2. John H. Boyd & Gianni De Nicoló & Abu M. Jalal, 2009. "Bank Competition, Risk and Asset Allocations," IMF Working Papers 09/143, International Monetary Fund.
  3. Agoraki, Maria-Eleni K. & Delis, Manthos D. & Pasiouras, Fotios, 2011. "Regulations, competition and bank risk-taking in transition countries," Journal of Financial Stability, Elsevier, Elsevier, vol. 7(1), pages 38-48, January.
  4. Fu, Xiaoqing (Maggie) & Lin, Yongjia (Rebecca) & Molyneux, Philip, 2014. "Bank competition and financial stability in Asia Pacific," Journal of Banking & Finance, Elsevier, Elsevier, vol. 38(C), pages 64-77.
  5. T. Beck & O. De Jonghe & G. Schepens, 2011. "Bank competition and stability: cross-country heterogeneity," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium, Ghent University, Faculty of Economics and Business Administration 11/732, Ghent University, Faculty of Economics and Business Administration.
  6. Beck, Thorsten & Demirguc-Kunt, Asli & Merrouche, Ouarda, 2010. "Islamic vs. conventional banking : business model, efficiency and stability," Policy Research Working Paper Series 5446, The World Bank.
  7. Panayiotis P. Athanasoglou, 2011. "Bank capital and risk in the South Eastern European region," Working Papers, Bank of Greece 137, Bank of Greece.
  8. Lucas Bretschger & Vivien Kappel, 2010. "Market concentration and the likelihood of financial crises," CER-ETH Economics working paper series 10/138, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  9. Berger, Allen N. & Bouwman, Christa H.S., 2013. "How does capital affect bank performance during financial crises?," Journal of Financial Economics, Elsevier, Elsevier, vol. 109(1), pages 146-176.
  10. Gonzales-Martínez, Rolando, 2008. "Estructura de Mercado, Condiciones de Entrada y Número Óptimo de Bancos en el Sistema Bancario Boliviano: Una Aproximación de Indicadores de Concentración y Movilidad Intra-industrial
    [Market S
    ," MPRA Paper 14012, University Library of Munich, Germany, revised Feb 2009.
  11. Pasali, Selahattin Selsah, 2013. "Where is the cheese ? synthesizing a giant literature on causes and consequences of financial sector development," Policy Research Working Paper Series 6655, The World Bank.
  12. Elmas Yaldiz & Flavio Bazzana, 2010. "The effect of market power on bank risk taking in Turkey," Financial Theory and Practice, Institute of Public Finance, Institute of Public Finance, vol. 34(3), pages 297-314.
  13. Daniel Chiquiar & Manuel Ramos Francia, 2009. "Competitiveness and Growth of the Mexican Economy," Working Papers, Banco de México 2009-11, Banco de México.

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