Bank Competition and Financial Stability: Friends or Foes?

32 Pages Posted: 20 Apr 2016

See all articles by Thorsten Beck

Thorsten Beck

City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER

Date Written: June 1, 2008

Abstract

Theory makes ambiguous predictions about the relationship between market structure and competitiveness of the banking system and banking sector stability. Empirical studies focusing on individual countries provide similarly ambiguous results, while cross-country studies point mostly to a positive relationship between competition and stability in the banking system. Where liberalization and unfettered competition have resulted in fragility, this has been mostly the consequence of regulatory and supervisory failures. The advantages of competition for an efficient and inclusive financial system are strong, and regulatory and supervisory policies should focus on an incentive-compatible environment for banking rather than try to fine-tune market structure or the degree of competition.

Keywords: Banks & Banking Reform, Access to Finance, Emerging Markets, Debt Markets, Labor Policies

Suggested Citation

Beck, Thorsten, Bank Competition and Financial Stability: Friends or Foes? (June 1, 2008). World Bank Policy Research Working Paper No. 4656, Available at SSRN: https://ssrn.com/abstract=1152483

Thorsten Beck (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

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