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Bank competition and financial stability: A comparison of commercial banks and mutual savings banks in Korea

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  • Jeon, Jin Q.
  • Lim, Kwang Kyu

Abstract

In this study, we provide new evidence that the relationship between banking competition and financial stability varies depending on the characteristics of banks. By using a sample of two different types of banks, Korean commercial banks and mutual savings banks, we find that the non-linear relationship between competition and the stability of commercial banks reflects a trade-off between the interest effect and risk-shifting effect. However, consistent with Boyd and De Nicolo (2005), competition has a positive effect on the stability of mutual savings banks with greater business risk and weaker corporate governance. Our results provide important implications on banking competition policy.

Suggested Citation

  • Jeon, Jin Q. & Lim, Kwang Kyu, 2013. "Bank competition and financial stability: A comparison of commercial banks and mutual savings banks in Korea," Pacific-Basin Finance Journal, Elsevier, vol. 25(C), pages 253-272.
  • Handle: RePEc:eee:pacfin:v:25:y:2013:i:c:p:253-272
    DOI: 10.1016/j.pacfin.2013.10.003
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    References listed on IDEAS

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    Cited by:

    1. Samangi Bandaranayake & Kuntal K. Das & W. Robert Reed, 2019. "Another Look at “Bank Competition and Financial Stability: Much Ado about Nothing?”," Working Papers in Economics 19/08, University of Canterbury, Department of Economics and Finance.
    2. Samangi Bandaranayake & Kuntal K. Das & W. Robert Reed, 2018. "A Replication of “Bank Competition and Financial Stability: Much Ado About Nothing?” (Journal of Economic Surveys, 2016)," Working Papers in Economics 18/18, University of Canterbury, Department of Economics and Finance.
    3. Diana Zigraiova & Tomas Havranek, 2016. "Bank Competition And Financial Stability: Much Ado About Nothing?," Journal of Economic Surveys, Wiley Blackwell, vol. 30(5), pages 944-981, December.
    4. repec:eee:ememar:v:38:y:2019:i:c:p:310-325 is not listed on IDEAS
    5. repec:eee:pacfin:v:48:y:2018:i:c:p:144-161 is not listed on IDEAS
    6. repec:eee:ecosys:v:43:y:2019:i:1:p:111-129 is not listed on IDEAS
    7. repec:eee:jebusi:v:96:y:2018:i:c:p:15-41 is not listed on IDEAS

    More about this item

    Keywords

    Bank competition; Stability; Risk shifting; Mutual saving banks; Commercial banks;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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