How does bank competition affect systemic stability ?
Using bank level measures of competition and co-dependence, the authors show a robust positive relationship between bank competition and systemic stability. Whereas much of the extant literature has focused on the relationship between competition and the absolute level of risk of individual banks, in this paper we examine the correlation in the risk taking behavior of banks, hence systemic risk. The analysis finds that greater competition encourages banks to take on more diversified risks, making the banking system less fragile to shocks. Examining the impact of the institutional and regulatory environment on systemic stability shows that banking systems are more fragile in countries with weak supervision and private monitoring, high government ownership of banks, and in countries with public policies that restrict competition. Furthermore, lack of competition has a greater adverse effect on systemic stability in countries with generous safety nets and weak supervision.
|Date of creation:||01 Feb 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bartram, Sohnke M. & Brown, Gregory W. & Hund, John E., 2007.
"Estimating systemic risk in the international financial system,"
Journal of Financial Economics,
Elsevier, vol. 86(3), pages 835-869, December.
- Bartram, Söhnke M. & Brown, Gregory W. & Hund, John E., 2005. "Estimating Systemic Risk in the International Financial System," MPRA Paper 6658, University Library of Munich, Germany.
- Bongini, Paola & Laeven, Luc & Majnoni, Giovanni, 2002. "How good is the market at assessing bank fragility? A horse race between different indicators," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 1011-1028, May.
- Campbell, John Y. & Hilscher, Jens & Szilagyi, Jan, 2005.
"In search of distress risk,"
Discussion Paper Series 1: Economic Studies
2005,27, Deutsche Bundesbank, Research Centre.
- John Y. Campbell & Jens Hilscher & Jan Szilagyi, 2006. "In Search of Distress Risk," NBER Working Papers 12362, National Bureau of Economic Research, Inc.
- John Y. Campbell & Jens Hilscher & Jan Szilagyi, 2005. "In Searach of Distress Risk," Harvard Institute of Economic Research Working Papers 2081, Harvard - Institute of Economic Research.
- Szilagyi, Jan & Hilscher, Jens & Campbell, John, 2008. "In Search of Distress Risk," Scholarly Articles 3199070, Harvard University Department of Economics.
- Gadi Barlevy & Pietro Veronesi, 2000.
"Rational Panics and Stock Market Crashes,"
CRSP working papers
483, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Berger, Allen N. & Klapper, Leora F. & Turk-Ariss, Rima, 2008.
"Bank competition and financial stability,"
Policy Research Working Paper Series
4696, The World Bank.
- repec:dgr:kubcen:201068s is not listed on IDEAS
- Helmut Elsinger & Alfred Lehar & Martin Summer, 2006.
"Using Market Information for Banking System Risk Assessment,"
International Journal of Central Banking,
International Journal of Central Banking, vol. 2(1), March.
- Elsinger, Helmut & Lehar, Alfred & Summer, Martin, 2005. "Using Market Information for Banking System Risk Assessment," MPRA Paper 817, University Library of Munich, Germany.
- Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
- Karolyi, G. Andrew & Lee, Kuan-Hui & van Dijk, Mathijs A., 2012. "Understanding commonality in liquidity around the world," Journal of Financial Economics, Elsevier, vol. 105(1), pages 82-112.
- repec:dgr:kubtil:2007010 is not listed on IDEAS
- Robert Hauswald & Robert Marquez, 2006. "Competition and Strategic Information Acquisition in Credit Markets," Review of Financial Studies, Society for Financial Studies, vol. 19(3), pages 967-1000.
- Anginer, Deniz & Demirguc-Kunt, Asli, 2014.
"Has the global banking system become more fragile over time?,"
Journal of Financial Stability,
Elsevier, vol. 13(C), pages 202-213.
- Anginer, Deniz & Demirguc-Kunt, Asli, 2011. "Has the global banking system become more fragile over time ?," Policy Research Working Paper Series 5849, The World Bank.
- Dell'Ariccia, Giovanni & Marquez, Robert, 2004. "Information and bank credit allocation," Journal of Financial Economics, Elsevier, vol. 72(1), pages 185-214, April.
- Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises: A New Database," IMF Working Papers 08/224, International Monetary Fund.
- repec:dgr:kubcen:2011080 is not listed on IDEAS
- Jorge A. Chan-Lau & Toni Gravelle, 2005. "The End: A New Indicator of Financial and Nonfinancial Corporate Sector Vulnerability," IMF Working Papers 05/231, International Monetary Fund.
- Martin CihÃ¡k & Simon Wolfe & Klaus Schaeck, 2006. "Are More Competitive Banking Systems More Stable?," IMF Working Papers 06/143, International Monetary Fund.
- Hakenes, Hendrik & Schnabel, Isabel, 2011. "Capital regulation, bank competition, and financial stability," Economics Letters, Elsevier, vol. 113(3), pages 256-258.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:5981. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.