Financial Stability and Concentration: Evidence from Emerging Europe

30 Pages Posted: 30 Jan 2017 Last revised: 2 Feb 2017

See all articles by Bogdan Capraru

Bogdan Capraru

Alexandru Ioan Cuza University

Norel Moise

University of Bucharest

Simona Nistor

Babes-Bolyai University - Department of Finance

Nicolae Petria

Lucian Blaga University of Sibiu

Date Written: December 20, 2016

Abstract

This paper investigates the impact of banking sector concentration on financial stability, across a sample of 134 commercial banks from 17 countries of Central and Eastern Europe during the period 2007-2012. Empirical findings highlight the concentration-fragility hypothesis, indicating that a high level of concentration in the banking sector is associated with a higher probability of default among banks, especially for the smaller ones. We also show that the negative influence of concentration might be reduced through a tight supervisory framework:

(i) stringent official supervisory power of the banking sector, but also,

(ii) differences between host and home country in terms of supervisory power, can significantly reduce the negative impact of concentration on banks’ probability of default.

Keywords: financial stability, Z-score, concentration, supervisory power, size

JEL Classification: G21, G28

Suggested Citation

Capraru, Bogdan and Moise, Norel and Nistor, Simona and Petria, Nicolae, Financial Stability and Concentration: Evidence from Emerging Europe (December 20, 2016). Available at SSRN: https://ssrn.com/abstract=2898033 or http://dx.doi.org/10.2139/ssrn.2898033

Bogdan Capraru (Contact Author)

Alexandru Ioan Cuza University ( email )

Carol I Blvd, Nr.11
Iasi, 700505
Romania

Norel Moise

University of Bucharest ( email )

Bucharest
Romania

Simona Nistor

Babes-Bolyai University - Department of Finance ( email )

Teodor Mihali Street, Nr. 58-60
Cluj-Napoca, 400591
Romania
+ 40 264 418652 (Phone)
+ 40 264 412570 (Fax)

Nicolae Petria

Lucian Blaga University of Sibiu ( email )

B-dul Victoriei, no.10
Calea Dumbravii 34
Sibiu, Sibiu 550024
Romania

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