Bank Competition and Financial Stability: Much Ado About Nothing?

38 Pages Posted: 28 Oct 2016

See all articles by Diana Zigraiova

Diana Zigraiova

Charles University in Prague

Tomas Havranek

Charles University in Prague; Czech National Bank (CNB)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2016

Abstract

The theoretical literature gives conflicting predictions on how bank competition should affect financial stability, and dozens of researchers have attempted to evaluate the relationship empirically. We collect 598 estimates of the competition‐stability nexus reported in 31 studies and analyse the literature using meta‐analysis methods. We control for 35 aspects of study design and employ Bayesian model averaging to tackle the resulting model uncertainty. Our findings suggest that the definition of financial stability and bank competition used by researchers influences their results in a systematic way. The choice of data, estimation methodology, and control variables also affects the reported coefficient. We find evidence for moderate publication bias. Taken together, the estimates reported in the literature suggest little interplay between competition and stability, even when corrected for publication bias and potential misspecifications.

Keywords: Bayesian model averaging, Bank competition, Financial stability, Publication selection bias, Meta‐analysis

Suggested Citation

Zigraiova, Diana and Havranek, Tomas, Bank Competition and Financial Stability: Much Ado About Nothing? (December 2016). Journal of Economic Surveys, Vol. 30, Issue 5, pp. 944-981, 2016. Available at SSRN: https://ssrn.com/abstract=2860394 or http://dx.doi.org/10.1111/joes.12131

Diana Zigraiova (Contact Author)

Charles University in Prague ( email )

Celetná 13
Praha 1, 116 36
Czech Republic

Tomas Havranek

Charles University in Prague ( email )

Celetná 13
Praha 1, 116 36
Czech Republic

Czech National Bank (CNB) ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

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