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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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    Keywords

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    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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