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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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Bibliographic Info

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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Cited by:
  1. Athanasoglou, Panayiotis, 2011. "Bank capital and risk in the South Eastern European region," MPRA Paper 32002, University Library of Munich, Germany.
  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, vol. 7(1), pages 38-48, January.
  4. Daniel Chiquiar & Manuel Ramos Francia, 2009. "Competitiveness and Growth of the Mexican Economy," Working Papers 2009-11, Banco de México.
  5. 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.
  6. 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 2011-080, Tilburg University, Center for Economic Research.
  7. 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.

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