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Banking Concentration and Financial Stability. New Evidence from Developed and Developing Countries

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  • Mohamed Sami Ben Ali

    (College of Business and Economics, Qatar University)

  • Timoumi Intissar

    (Banque Nationale Agricole (BNA))

  • Rami Zeitun

    (College of Business and Economics, Qatar University)

Abstract

In this paper, we analyze the relationship between banking concentration and financial stability for a sample of 156 developed and developing countries during the period 1980–2011. Our study first examines the direct effect of banking concentration on financial stability. The results provide evidence that concentration does not directly affect the stability of the financial system. The study also investigates two indirect channels and finds that concentration has a positive and stabilizing impact on financial stability through the profitability channel and a negative and destabilizing impact through the interest rate channel. When considering the level of development across countries, our results support the existence of a stabilizing effect of concentration on financial stability and the absence of a destabilizing interest channel for developing countries. Interestingly, our results also indicate that concentration has a direct and indirect effect on financial stability during crisis periods, but no direct effect on financial stability during normal periods.

Suggested Citation

  • Mohamed Sami Ben Ali & Timoumi Intissar & Rami Zeitun, 2018. "Banking Concentration and Financial Stability. New Evidence from Developed and Developing Countries," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 44(1), pages 117-134, January.
    • Handle: RePEc:pal:easeco:v:44:y:2018:i:1:d:10.1057_eej.2016.8
    DOI: 10.1057/eej.2016.8
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    3. Samangi Bandaranayake & Kuntal K. Das & Robert W. Reed, 2020. "Another Look At ‘Bank Competition And Financial Stability: Much Ado About Nothing’?," Journal of Economic Surveys, Wiley Blackwell, vol. 34(2), pages 344-371, April.
    4. 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.
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    financial stability; banking fragility;

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