Does Prudential Regulation Harm Competition in the Banking Sector?

Abstract:     
Using bank-level data from 38 countries, this paper examines how a range of stability-oriented regulatory policies for banking are related to competition outcomes. Based on policy indicators constructed at the OECD for eight areas of prudential banking regulation, the results do not support the view that there is a general trade-off between stability-oriented regulatory policies and competition in banking. Only stringent entry and ownership regulations seem to have an anticompetitive effect, and some areas of prudential regulation - most notably the strength of the banking supervisor – are even associated with greater competition in banking. Overall, the results suggest that stability-enhancing regulatory reform does not need to come at the expense of competition.

Number of Pages in PDF File: 25

working papers series