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Banking Competition and Capital Ratios

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  • Martin Cihak
  • Klaus Schaeck

Abstract

We use data for more than 2,600 European banks to test whether increased competition causes banks to hold higher capital ratios. Employing panel data techniques, and distinguishing between the competitive conduct of small and large banks, we show that banks tend to hold higher capital ratios when operating in a more competitive environment. This result holds when controlling for the degree of concentration in banking systems, inter-industry competition, characteristics of the wider financial system, and the regulatory and institutional environment.

Suggested Citation

  • Martin Cihak & Klaus Schaeck, 2007. "Banking Competition and Capital Ratios," IMF Working Papers 07/216, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/216
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    Keywords

    Banks; Bank supervision; Competition; Industrial structure; Bank capital ratios; market structure; regulation; banking; statistic; statistics; bank capital; deposit insurance;

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