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Competition and stability: what's special about banking?

Listed author(s):
  • Carletti, Elena
  • Hartmann, Philipp

This paper examines the relationship between competition policies and policies to preserve stability in the banking sector. Market structures and the relative importance of the three classical antitrust areas for banking are discussed, showing the predominance of merger review considerations for loan and deposit markets as well as the relevance of cartel considerations for payment systems. A core part of the paper is an analysis of the relative roles of competition and supervisory authorities in the review of bank mergers for the G-7 industrialised countries. A wide variety of approaches emerges, with some countries giving a stronger role to prudential supervisors than to competition authorities and other countries doing it the other way round. In search for explanations for this diversity the theoretical and empirical literature on the competition-stability nexus in banking is surveyed. It turns out that the widely accepted trade-off between competition and stability does not generally hold. JEL Classification: G21, G28, G34, K21, L4

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File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp146.pdf
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Paper provided by European Central Bank in its series Working Paper Series with number 0146.

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Date of creation: May 2002
Handle: RePEc:ecb:ecbwps:20020146
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  17. Perotti, Enrico C. & Suarez, Javier, 2002. "Last bank standing: What do I gain if you fail?," European Economic Review, Elsevier, vol. 46(9), pages 1599-1622, October.
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  23. Cordella, Tito & Levy Yeyati, Eduardo, 1998. "Financial Opening, Deposit Insurance and Risk in a Model of Banking Competition," CEPR Discussion Papers 1939, C.E.P.R. Discussion Papers.
  24. Calomiris, Charles W & Kahn, Charles M, 1991. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review, American Economic Association, vol. 81(3), pages 497-513, June.
  25. Smith, Bruce D., 1984. "Private information, deposit interest rates, and the `stability' of the banking system," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 293-317, November.
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  27. Xavier Vives, 2001. "Restructuring Financial Regulation in the European Monetary Union," Journal of Financial Services Research, Springer;Western Finance Association, vol. 19(1), pages 57-82, February.
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