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Bank Stability and Competition: Evidence from Albanian Banking Market

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  • Shijaku, Gerti

Abstract

This paper analyses the inter-temporal competition – stability nexus after the global financial crises. For this reason, the empirical estimation approach follows a five – step procedure. First, we utilise quarterly macroeconomic and balance sheet and income statement data for 16 banks operating in the Albanian banking sector over the period 2008 – 2015. Second, we calculate a new composite index as a measure of bank stability conditions, which includes a wide set of information rather than focusing only on one aspect of risk. Then, we construct a proxy for bank competition such as the Boone indicator. Empirical estimations are based on the General Method of Moments approach. A set of robustness checks include also the use of other alternative proxy of competition such as the Lerner index and the efficient-adjusted Lerner index, profit elasticity and the Herfindahl index. Empirical results strongly support the “competition – stability” view after the global financial crises - that higher degree of competition boosts further bank stability conditions. Results further indicate that greater concentration has also a negative impact on bank stability. Results imply also that bank stability is positively linked with macroeconomic conditions and capital ratio and inverse with operational efficiency. Finally, we do not find a non-linear relationship between competition and stability.

Suggested Citation

  • Shijaku, Gerti, 2017. "Bank Stability and Competition: Evidence from Albanian Banking Market," MPRA Paper 79891, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:79891
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    Keywords

    Bank stability; Competition; Boone indicator; Panel Data; GMM.;

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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