Banking Competition and Capital Ratios

42 Pages Posted: 26 Sep 2007

See all articles by Klaus Schaeck

Klaus Schaeck

University of Bristol

Martin Čihák

International Monetary Fund (IMF); World Bank

Multiple version iconThere are 3 versions of this paper

Date Written: September 2007


We use data for more than 2,600 European banks to test whether increased competition causes banks to hold higher capital ratios. Employing panel data techniques, and distinguishing between the competitive conduct of small and large banks, we show that banks tend to hold higher capital ratios when operating in a more competitive environment. This result holds when controlling for the degree of concentration in banking systems, inter-industry competition, characteristics of the wider financial system, and the regulatory and institutional environment.

Keywords: Working Paper, Banks, Capital, Competition, Bank supervision, Industrial structure

Suggested Citation

Schaeck, Klaus and Cihak, Martin and Cihak, Martin, Banking Competition and Capital Ratios (September 2007). IMF Working Paper No. 07/216, Available at SSRN:

Klaus Schaeck

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Martin Cihak (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

World Bank ( email )

1818 H Street NW
Washington, DC 20433
United States

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