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Competition and Stability in European Banking: A Regional Analysis

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  • Phil Molyneux

    () (Bangor University)

  • Hong Liu

    (Bangor University)

  • John O.S. Wilson

    (University of St Andrews)

Abstract

National measures of competition and macroeconomic activity have been used by researchers in recent years to explain performance and risk differentials across banks. However, such measures may be inappropriate for banks which operate with a regional focus. In this paper we construct measures of competition and economic activity using regional data to examine bank stability in 11 European countries over the period 2000-2008. The results suggest that a U-shaped relationship exists between regional bank competition and stability. This implies that a moderate level of bank competition is required to keep bank risks at a minimum level. Furthermore, regional economic conditions play a significant role in determining the stabilityof European banks.

Suggested Citation

  • Phil Molyneux & Hong Liu & John O.S. Wilson, 2010. "Competition and Stability in European Banking: A Regional Analysis," Working Papers 10019, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  • Handle: RePEc:bng:wpaper:10019
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    3. Kabir, Md. Nurul & Worthington, Andrew C., 2017. "The ‘competition–stability/fragility’ nexus: A comparative analysis of Islamic and conventional banks," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 111-128.
    4. Chiaramonte, Laura & Croci, Ettore & Poli, Federica, 2015. "Should we trust the Z-score? Evidence from the European Banking Industry," Global Finance Journal, Elsevier, vol. 28(C), pages 111-131.
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    9. Irina Bilan & Angela Roman, 2016. "Macroeconomic Environment and Banking Sector Soundness in CEE Countries," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 421-426, February.
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    18. Raúl Osvaldo Fernández & Jesús G. Garza-García, 2015. "The relationship between bank competition and financial stability: a case study of the Mexican banking industry," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 103-120, May.
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    21. Shijaku, Gerti, 2016. "Does bank competition affect bank stability after the global financial crisis?," MPRA Paper 79084, University Library of Munich, Germany.
    22. Amidu, Mohammed, 2013. "The effects of the structure of banking market and funding strategy on risk and return," International Review of Financial Analysis, Elsevier, vol. 28(C), pages 143-155.
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    24. M. Brei & L. Jacolin & A. Noah, 2018. "Credit risk and bank competition in Sub-Saharan Africa," Working papers 664, Banque de France.
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