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State-Aid, Stability and Competition in European Banking

Listed author(s):
  • Fiordelisi, Franco
  • Mare, Davide Salvatore
  • Molyneux, Philip

What is the relationship between bank fragility and competition during a period of market turmoil? Does market power in European banking involve extra-gains after discounting for the cost of government intervention? We answer these questions in the context of Eurozone banking over 2005-2012 and show that greater market power increases bank stability implying aggregate extra-gains of 57% of EU12 gross domestic product for the banking sector after discounting for the costs associated with government intervention. The negative influence of competition on bank stability is non-monotonic and reverses for lower degrees of competition. Capital injections, guarantees and asset relief measures elicit greater bank soundness.

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File URL: https://mpra.ub.uni-muenchen.de/67473/1/MPRA_paper_67473.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 67473.

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Date of creation: Sep 2015
Handle: RePEc:pra:mprapa:67473
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