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Are More Competitive Banking Systems More Stable?

Author

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  • Mr. Martin Cihak
  • Simon Wolfe
  • Mr. Klaus Schaeck

Abstract

This paper provides the first empirical analysis of the cross-country relationship between a direct measure of competitive conduct of financial institutions and banking system fragility. Using the Panzar and Rosse H-Statistic as a measure for competition in 38 countries during 1980-2003, we present evidence that more competitive banking systems are less prone to systemic crises and that time to crisis is longer in a competitive environment. Our results hold when concentration and the regulatory environment are controlled for and are robust to different methodologies, different sampling periods, and alternative samples.

Suggested Citation

  • Mr. Martin Cihak & Simon Wolfe & Mr. Klaus Schaeck, 2006. "Are More Competitive Banking Systems More Stable?," IMF Working Papers 2006/143, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2006/143
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    References listed on IDEAS

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