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On measuring concentration in banking systems

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  • Alegria, Carlos
  • Schaeck, Klaus

Abstract

Assuming a Pareto-type distribution of bank sizes, we investigate the effect of changes in Zipf's exponent ([alpha]) and the sample size on the behavior of different concentration indices, such as the 3-bank concentration ratio, the Herfindahl-Hirschman index and the top 5%-concentration ratio. We derive analytical relations between these concentration indices and investigate the elasticity of these indices to changes in [alpha] and in the sample size N. We show different regimes under which each index can be used most appropriately. Our results are highly relevant for policymakers who rely on such concentration measures to derive public policy recommendations in banking.

Suggested Citation

  • Alegria, Carlos & Schaeck, Klaus, 2008. "On measuring concentration in banking systems," Finance Research Letters, Elsevier, vol. 5(1), pages 59-67, March.
  • Handle: RePEc:eee:finlet:v:5:y:2008:i:1:p:59-67
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    References listed on IDEAS

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    Cited by:

    1. Huysentruyt, Marieke & Lefevere, Eva & Menon, Carlo, 2010. "Bank location and financial liberalization reforms: evidence from microgeographic data," LSE Research Online Documents on Economics 33551, London School of Economics and Political Science, LSE Library.
    2. Leonardo S. Alencar, 2012. "Revisiting Bank Pricing Policies in Brazil: Evidence from Loan and Deposit Markets," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(67), pages 35-71, December.
    3. Nguyen, My & Skully, Michael & Perera, Shrimal, 2012. "Bank market power and revenue diversification: Evidence from selected ASEAN countries," Journal of Asian Economics, Elsevier, vol. 23(6), pages 688-700.
    4. Martin CIHAK, 2007. "Systemic Loss: A Measure of Financial Stability (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(1-2), pages 5-26, March.
    5. Tai-Hsin Huang & Nan-Hung Liu, 2014. "Bank competition in transition countries: Are those markets really in equilibrium?," Empirical Economics, Springer, vol. 47(4), pages 1283-1316, December.
    6. repec:spr:empeco:v:54:y:2018:i:2:d:10.1007_s00181-016-1216-z is not listed on IDEAS
    7. Guidara, Alaa & Lai, Van Son & Soumaré, Issouf & Tchana, Fulbert Tchana, 2013. "Banks’ capital buffer, risk and performance in the Canadian banking system: Impact of business cycles and regulatory changes," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3373-3387.
    8. repec:elg:eechap:16878_10 is not listed on IDEAS
    9. Allen N. Berger & Leora F. Klapper & Rima Turk-Ariss, 2017. "Bank competition and financial stability," Chapters,in: Handbook of Competition in Banking and Finance, chapter 10, pages 185-204 Edward Elgar Publishing.
    10. repec:eee:quaeco:v:67:y:2018:i:c:p:362-375 is not listed on IDEAS
    11. David G. McMillan & Fiona J. McMillan, 2016. "US Bank Market Structure: Evolving Nature and Implications," Journal of Financial Services Research, Springer;Western Finance Association, vol. 50(2), pages 187-210, October.
    12. Maurizio Naldi & Marta Flamini, 2014. "The CR4 index and the interval estimation of the Herfindahl-Hirschman Index: an empirical comparison," Working Papers hal-01008144, HAL.
    13. repec:bla:econpa:v:36:y:2017:i:4:p:401-415 is not listed on IDEAS
    14. repec:eee:quaeco:v:65:y:2017:i:c:p:212-226 is not listed on IDEAS
    15. Nguyen, My & Perera, Shrimal & Skully, Michael, 2016. "Bank market power, ownership, regional presence and revenue diversification: Evidence from Africa," Emerging Markets Review, Elsevier, vol. 27(C), pages 36-62.
    16. Tomson Ogwang, 2011. "Power laws in top wealth distributions: evidence from Canada," Empirical Economics, Springer, vol. 41(2), pages 473-486, October.

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