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Bank competition and stability: cross-country heterogeneity

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  • T. BECK
  • O. DE JONGHE
  • G. SCHEPENS

Abstract

This paper documents a large cross-country variation in the relationship between bank competition and stability and explores market, regulatory and institutional features that can explain this heterogeneity. Combining insights from the competition-stability and regulation-stability literatures, we develop a unied framework to assess how regulation, supervision and other institutional factors may make it more likely that the data favor the charter-value paradigm or the risk-shifting paradigm. We show that an increase in competition will have a larger impact on banks’ risk taking incentives in countries with stricter activity restrictions, more homogenous market structures, more generous deposit insurance and more effective systems of credit information sharing.

Suggested Citation

  • T. Beck & O. De Jonghe & G. Schepens, 2011. "Bank competition and stability: cross-country heterogeneity," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/732, Ghent University, Faculty of Economics and Business Administration.
  • Handle: RePEc:rug:rugwps:11/732
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    More about this item

    Keywords

    Competition; Stability; Banking; Herding; Deposit Insurance; Information Sharing; Risk Shifting;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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