Does Prudential Regulation Harm Competition in the Banking Sector?

25 Pages Posted: 12 Jul 2011  

Rudiger Ahrend

Public Governance and Territorial Development; OECD

Jens Matthias Arnold

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Date Written: July 2011

Abstract

Using bank-level data from 38 countries, this paper examines how a range of stability-oriented regulatory policies for banking are related to competition outcomes. Based on policy indicators constructed at the OECD for eight areas of prudential banking regulation, the results do not support the view that there is a general trade-off between stability-oriented regulatory policies and competition in banking. Only stringent entry and ownership regulations seem to have an anticompetitive effect, and some areas of prudential regulation - most notably the strength of the banking supervisor – are even associated with greater competition in banking. Overall, the results suggest that stability-enhancing regulatory reform does not need to come at the expense of competition.

Suggested Citation

Ahrend, Rudiger and Arnold, Jens Matthias, Does Prudential Regulation Harm Competition in the Banking Sector? (July 2011). Paolo Baffi Centre Research Paper No. 2011-98. Available at SSRN: https://ssrn.com/abstract=1884152 or http://dx.doi.org/10.2139/ssrn.1884152

Rudiger Ahrend

Public Governance and Territorial Development; OECD ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Jens Matthias Arnold (Contact Author)

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

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