Bank Competition and Credit Risk in the Euro Area, 2005–2017: Is There Evidence of Convergence?

LEQS Paper No. 155/2020, April 2020

55 Pages Posted: 3 May 2020

See all articles by Maria Karadima

Maria Karadima

Athens University of Economics and Business - Department of Economics

Helen Louri

Athens University of Economics and Business - Department of Economics

Date Written: 2020

Abstract

Consolidation in euro area banking has been the major trend post-crisis. Has it been accompanied by more or less competition? Has it led to more or less credit risk? In all or some countries? In this study, we examine the evolution of competition (through market power and concentration) and credit risk (through non-performing loans) in 2005-2017 across all euro area countries (EA-19), as well as core (EA-Co) and periphery (EA-Pe) countries separately. Using Theil inequality and convergence analysis, our results support the continued existence of fragmentation as well as of divergence within and/or between core and periphery with respect to competition and credit risk, especially post-crisis, in spite of some partial reintegration trends. Policy measures supporting faster convergence of our variables would be helpful in establishing a real banking union.

Keywords: Banking Competition, Credit Risk, NPLs, Theil Index, Convergence Analysis

JEL Classification: C23, G21

Suggested Citation

Karadima, Maria and Louri, Eleni (Helen), Bank Competition and Credit Risk in the Euro Area, 2005–2017: Is There Evidence of Convergence? (2020). LEQS Paper No. 155/2020, April 2020, Available at SSRN: https://ssrn.com/abstract=3570501 or http://dx.doi.org/10.2139/ssrn.3570501

Maria Karadima

Athens University of Economics and Business - Department of Economics

Athens
Greece

Eleni (Helen) Louri (Contact Author)

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

76 Patission Street
GR-10434 Athens
Greece
+30 1 8203122 (Phone)
+30 1 8238249 (Fax)

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