Citations (4)



Competition, Efficiency, and Stability in Banking

Klaus Schaeck

Lancaster University

Martin Čihák

International Monetary Fund (IMF)

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

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Date posted: January 6, 2013 ; Last revised: March 12, 2014

Suggested Citation

Schaeck, Klaus and Čihák, Martin, Competition, Efficiency, and Stability in Banking (December 26, 2012). Financial Management, Vol. 43, pp. 215–241. Available at SSRN: https://ssrn.com/abstract=2193929

Contact Information

Klaus Schaeck (Contact Author)
Lancaster University ( email )
Lancaster LA1 4YX
United Kingdom
Martin Cihak
International Monetary Fund (IMF) ( email )
700 19th Street N.W.
Washington, DC 20431
United States
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