Bank Competition and Stability: Cross-Country Heterogeneity
City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER
Olivier De Jonghe
Tilburg University - Department of Finance; Tilburg University - European Banking Center
European Central Bank
June 11, 2012
Journal of Financial Intermediation, Forthcoming
This paper documents large cross-country variation in the relationship between bank competition and bank stability and explores market, regulatory and institutional features that can explain this variation. We show that an increase in competition will have a larger impact on banks’ fragility in countries with stricter activity restrictions, lower systemic fragility, better developed stock exchanges, more generous deposit insurance and more effective systems of credit information sharing. The effects are economically large and thus have important repercussions for the current regulatory reform debate.
Number of Pages in PDF File: 54
Keywords: Competition, Stability, Banking, Herding, Deposit Insurance, Information Sharing, Risk Shifting
JEL Classification: G21, G28, L51
Date posted: November 19, 2010 ; Last revised: October 21, 2012
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