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Bank Concentration and Fragility. Impact and Mechanics

In: The Risks of Financial Institutions

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Abstract

Public policy debates and theoretical disputes motivate this paper%u2019s examination of (i) the relationship between bank concentration and banking system fragility and (ii) the mechanisms underlying this relationship. We find no support for the view that concentration increases the fragility of banks. Rather, banking system concentration is associated with a lower probability that the country suffers a systemic banking crisis. In terms of policies, we find that (i) regulations and institutions that facilitate competition in banking are associated with less -- not more -- banking system fragility and (ii) including these policy indicators does not change the results on concentration. This suggests that concentration is a proxy for something else besides the competitive environment. Also, we do not find that official capital regulations, reserve requirements, or official prudential regulations lower crises probabilities. Finally, we present suggestive evidence that concentrated banking systems tend to have larger, better-diversified banks, which may help account for the positive link between concentration and stability.
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  • Thorsten Beck, 2007. "Bank Concentration and Fragility. Impact and Mechanics," NBER Chapters,in: The Risks of Financial Institutions, pages 193-234 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:9610
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    Cited by:

    1. CLICHICI, Dorina, 2013. "The Determinants Of Banking System Vulnerability In The Republic Of Moldova," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 17(4), pages 8-21.
    2. Ömer Ýskenderoglu & Serpil Tomak, 2013. "Competition and Stability: An Analysis of the Turkish Banking System," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 752-762.
    3. Boot, Arnoud W A & Marinc, Matej, 2006. "Competition and Entry in Banking: Implications for Stability and Capital Regulation," CEPR Discussion Papers 5518, C.E.P.R. Discussion Papers.
    4. repec:eee:ecmode:v:67:y:2017:i:c:p:392-408 is not listed on IDEAS
    5. Purificación Parrado-Martínez & Antonio Partal-Ureña & Pilar Gómez Fernández-Aguado, 2016. "Banking Soundness Indicators and Sovereign Risk in Time of Crisis: The Case of the European Union," The World Economy, Wiley Blackwell, vol. 39(8), pages 1172-1193, August.
    6. Frederic S. Mishkin, 2005. "How Big a Problem is Too Big to Fail?," NBER Working Papers 11814, National Bureau of Economic Research, Inc.
    7. Nier, Erlend & Baumann, Ursel, 2006. "Market discipline, disclosure and moral hazard in banking," Journal of Financial Intermediation, Elsevier, vol. 15(3), pages 332-361, July.
    8. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2004. "Finance, inequality, and poverty: cross-country evidence," Policy Research Working Paper Series 3338, The World Bank.
    9. Martin Cihak & Simon Wolfe & Klaus Schaeck, 2006. "Are More Competitive Banking Systems More Stable?," IMF Working Papers 06/143, International Monetary Fund.
    10. Sanjukta Sarkar & Rudra Sensarma, 2016. "The relationship between competition and risk-taking behaviour of Indian banks," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 8(1), pages 95-119, April.
    11. Feldmann, Horst, 2015. "Banking system concentration and unemployment in developing countries," Journal of Economics and Business, Elsevier, vol. 77(C), pages 60-78.
    12. Lee, Chien-Chiang & Hsieh, Meng-Fen, 2014. "Bank reforms, foreign ownership, and financial stability," Journal of International Money and Finance, Elsevier, vol. 40(C), pages 204-224.
    13. Olga Pak & Mira Nurmakhanova, 2013. "The Effect of Market Power on Bank Credit Risk-Taking and Bank Stability in Kazakhstan," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 20(3), pages 335-350, November.
    14. Tidiane Kinda & Montfort Mlachila & Rasmané Ouedraogo, 2016. "Commodity Price Shocks and Financial Sector Fragility," IMF Working Papers 16/12, International Monetary Fund.
    15. Moscone, Francesco & Tosetti, Elisa & Canepa, Alessandra, 2014. "Real estate market and financial stability in US metropolitan areas: A dynamic model with spatial effects," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 129-146.
    16. Vu, Tram & Do, Viet & Skully, Michael, 2015. "Local versus foreign banks: A home market advantage in loan syndications," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 29-39.
    17. Joe Crowley, 2007. "Interest Rate Spreads in English-Speaking African Countries," IMF Working Papers 07/101, International Monetary Fund.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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