Competition and Banking Stability in the Euro Area: The Cases for Greece and Spain

Journal of International Banking Regulation, Vol. 2, No. 1, April 2000

Cass Business School Research Paper

Posted: 25 Sep 2000

See all articles by Christos Staikouras

Christos Staikouras

Athens University of Economics and Business - Department of Accounting and Finance

Geoffrey Wood

Cass Business School

Multiple version iconThere are 2 versions of this paper

Abstract

Banking markets across the world are evolving rapidly, under the impact of financial innovation, globalisation, and information technology. Within Europe these changes are especially fast and far-reaching, accelerated by both the completion of the single market in financial services and the introduction of the Euro. The Euro and the associated deregulation of banking markets are affecting the revenues of the European banking system as a whole, and are changing the allocation of revenue between banks, with implications for financial stability and prudential regulation. Essential to the continuing stability of a banking system is that it be profitable. This paper describes the current situation of the banking industry in two countries, Greece and Spain. It provides a comparative analysis of the structure and sources of profitability for the Greek and Spanish national banking systems. Profitability has been higher and less variable in Spain compared with Greece. This comparison enables us to offer some suggestions as to the impact of deregulation and inflation on banking sector stability. A full liberalisation of interest rates setting and removal of most institutional barriers restricting competition between different banking markets had an impact on both banking sectors. Higher and more variable rates of inflation in Greece can give an explanation of higher variability in bank profits compared with Spain. The paper demonstrates that there remains substantial differences, and thus responsibility for national financial systems should rest, at least for the time being, with national central banks rather than be centralised with the ECB.

Keywords: Banking industry, structure, sources of profitability, regulation, stability

JEL Classification: G20

Suggested Citation

Staikouras, Christos and Wood, Geoffrey E., Competition and Banking Stability in the Euro Area: The Cases for Greece and Spain. Journal of International Banking Regulation, Vol. 2, No. 1, April 2000; Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=235581

Christos Staikouras (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
Athens, 104 34
Greece
+30 210 8203 459 (Phone)

Geoffrey E. Wood

Cass Business School ( email )

London, EC2Y 8HB
Great Britain
+44 0 20 7040 8740 (Phone)
+44 0 20 7040 8881 (Fax)

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