Citations (4)



Competition, Efficiency, and Stability in Banking

Klaus Schaeck

University of Wales - Bangor Business School

Martin Cihák

World Bank

December 26, 2012

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

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

Accepted Paper Series

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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
World Bank ( email )
1818 H Street, NW
Washington, DC 20433
United States
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