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Banking Competition and Financial Fragility: Evidence from Panel-Data

  • Antonio Ruiz-Porras

    (Instituto Tecnológico y de Estudios Superiores de Monterrey)

We study how competition may affect the stability of banking systems. We modify the failure-determinant methodology to include panel-data techniques. We use indicators for 47 countries between 1990 and 1997. The main findings show that banking concentration and foreign ownership are associated to bank-based financial systems and financial underdevelopment. They also show that banking credit and bank-based financial systems enhance banking fragility. Banking concentration is not a significant determinant. Furthermore our findings suggest that financial structure and, maybe, the property regime matter to assess such fragility.

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Article provided by El Colegio de México, Centro de Estudios Económicos in its journal Estudios Económicos.

Volume (Year): 23 (2008)
Issue (Month): 1 ()
Pages: 49-87

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Handle: RePEc:emx:esteco:v:23:y:2008:i:1:p:49-87
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  1. Daniel C. Hardy & Ceyla Pazarbasioglu, 1999. "Determinants and Leading Indicators of Banking Crises: Further Evidence," IMF Staff Papers, Palgrave Macmillan, vol. 46(3), pages 1.
  2. Matutes, Carmen & Vives, Xavier, 2000. "Imperfect competition, risk taking, and regulation in banking," European Economic Review, Elsevier, vol. 44(1), pages 1-34, January.
  3. Demirguc-Kunt, Asli & Detragiache, Enrica, 2005. "Cross-country empirical studies of systemic bank distress : a survey," Policy Research Working Paper Series 3719, The World Bank.
  4. Dowd, Kevin, 1996. "The Case for Financial Laissez-Faire," Economic Journal, Royal Economic Society, vol. 106(436), pages 679-87, May.
  5. Ruiz-Porras, Antonio, 2006. "Financial systems and banking crises: An assessment," MPRA Paper 168, University Library of Munich, Germany.
  6. Rolnick, Arthur J & Weber, Warren E, 1983. "New Evidence on the Free Banking Era," American Economic Review, American Economic Association, vol. 73(5), pages 1080-91, December.
  7. Norman Loayza & Romain Ranciere, 2002. "Financial Development, Financial Fragility, and Growth," Working Papers Central Bank of Chile 145, Central Bank of Chile.
  8. Demirguc-Kunt, Asli & Huizinga, Harry, 2000. "Financial structure and bank profitability," Policy Research Working Paper Series 2430, The World Bank.
  9. Thorsten Beck & Asli Demirguc-Kunt & Ross Levine, 2003. "Bank Concentration and Crises," NBER Working Papers 9921, National Bureau of Economic Research, Inc.
  10. Franklin Allen, 2001. "Financial Structure and Financial Crisis," International Review of Finance, International Review of Finance Ltd., vol. 2(1&2), pages 1-19.
  11. Kaniska Dam & Susana Wendy Zendejas Castillo, 2006. "Market power and risk taking behavior of banks," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 21(1), pages 55-84.
  12. Caminal, Ramon & Matutes, Carmen, 2002. "Market power and banking failures," International Journal of Industrial Organization, Elsevier, vol. 20(9), pages 1341-1361, November.
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