How Market Power Influences Bank Failures: Evidence from Russia
26 Pages Posted: 16 Feb 2009
Date Written: February 14, 2009
Abstract
A vast debate in the literature on banking exists on the impact of bank competition on financial stability. While the dominant view is in favor of a detrimental impact of competition on the stability of banks, this view has recently been challenged by Boyd and De Nicolo (2005) supporting the opposite effect. The aim of this paper is to contribute to this literature by providing the first empirical investigation of the impact of bank competition on the occurrence of bank failures. We analyze this issue on a large sample of Russian banks for the period 2001-2007 by measuring bank competition with the Lerner index. The Russian banking industry is a unique example of an emerging market which has undergone a large number of bank failures during the last decade. Our findings clearly support the view that greater bank competition is detrimental for financial stability. This result is robust to tests controlling for the measurement of market power, the definition of bank failure, the set of control variables, the linear specification of the relationship. The normative implications of our findings therefore suggest that measures increasing bank competition could weaken financial stability.
Keywords: bank competition, bank failure, Russia
JEL Classification: G21, P34
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Bank Performance, Efficiency and Ownership in Transitition Countries
By John Bonin, Paul Wachtel, ...
-
Bank Ownership and Performance
By Alejandro Micco, Ugo Panizza, ...
-
By Allen N. Berger, George R. G. Clarke, ...
-
By David Grigorian and Vlad Manole
-
Why Privatize? The Case of Argentina's Public Provincial Banks
By Robert Cull and George R. G. Clarke
-
Privatization Matters: Bank Efficiency in Transition Countries
By John Bonin, Paul Wachtel, ...
-
Privatization Matters: Bank Efficiency in Transition Countries
By John Bonin, Paul Wachtel, ...
-
Privatization Matters: Bank Efficiency in Transition Countries
By John Bonin, Iftekhar Hasan, ...