Abstract

http://ssrn.com/abstract=2193929
 
 

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Competition, Efficiency, and Stability in Banking


Klaus Schaeck


University of Wales - Bangor Business School

Martin Cihák


International Monetary Fund (IMF)

December 26, 2012

Financial Management, Vol. 43, pp. 215–241

Abstract:     
We examine the effect of competition on banking stability using a new measure of competition based on the reallocation of profits from inefficient banks to efficient ones (Boone, 2008). Examining a sample of European banks, we show that this measure does capture competition, that competition is stability-enhancing, and that the stability-enhancing effect of competition is greater for healthy banks than for fragile ones. Our results suggest that efficiency is the conduit through which competition contributes to stability and that regulators must condition policy on the health of existing banks.

Number of Pages in PDF File: 32

Keywords: competition, efficiency, stability, Boone indicator, quantile regression, regulation

JEL Classification: G21, G28

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Date posted: January 6, 2013 ; Last revised: March 12, 2014

Suggested Citation

Schaeck, Klaus and Cihák, Martin, Competition, Efficiency, and Stability in Banking (December 26, 2012). Financial Management, Vol. 43, pp. 215–241. Available at SSRN: http://ssrn.com/abstract=2193929

Contact Information

Klaus Schaeck (Contact Author)
University of Wales - Bangor Business School ( email )
Bangor, Gwynedd, Wales LL57 2DG
United Kingdom
Martin Cihák
International Monetary Fund (IMF) ( email )
700 19th Street N.W.
Washington, DC 20431
United States
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