Competition Policy for Modern Banks

20 Pages Posted: 26 May 2013

See all articles by Lev Ratnovski

Lev Ratnovski

International Monetary Fund; European Central Bank, Financial Research Division

Multiple version iconThere are 2 versions of this paper

Date Written: May 24, 2013

Abstract

Traditional bank competition policy seeks to balance efficiency with incentives to take risk. The main tools are rules guiding entry/exit and consolidation of banks. This paper seeks to refine this view in light of recent changes to financial services provision. Modern banking is largely market-based and contestable. Consequently, banks in advanced economies today have structurally low charter values and high incentives to take risk. In such an environment, traditional policies that seek to affect the degree of competition by focusing on market structure (i.e. concentration) may have limited effect. We argue that bank competition policy should be reoriented to deal with the too-big-to-fail (TBTF) problem. It should also focus on the permissible scope of activities rather than on market structure of banks. And following a crisis, competition policy should facilitate resolution by temporarily allowing higher concentration and government control of banks.

Keywords: Banks, Competition Policy, Risk Taking

Suggested Citation

Ratnovski, Lev, Competition Policy for Modern Banks (May 24, 2013). Available at SSRN: https://ssrn.com/abstract=2270288 or http://dx.doi.org/10.2139/ssrn.2270288

Lev Ratnovski (Contact Author)

International Monetary Fund ( email )

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

HOME PAGE: http://ratnovski.googlepages.com

European Central Bank, Financial Research Division

Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
38
Abstract Views
366
PlumX Metrics