Competition and Stability: What's Special About Banking?

50 Pages Posted: 17 Jan 2003

See all articles by Elena Carletti

Elena Carletti

Bocconi University - Department of Finance; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Philipp Hartmann

European Central Bank (ECB); Centre for Economic Policy Research (CEPR) - International Macroeconomics

Date Written: May 2002

Abstract

This paper examines the relationship between competition policies and policies to preserve stability in the banking sector. Market structures and the relative importance of the three classical antitrust areas for banking are discussed, showing the predominance of merger review considerations for loan and deposit markets as well as the relevance of cartel considerations for payment systems. A core part of the paper is an analysis of the relative roles of competition and supervisory authorities in the review of bank mergers for the G-7 industrialised countries. A wide variety of approaches emerges, with some countries giving a stronger role to prudential supervisors than to competition authorities and other countries doing it the other way round. In search for explanations for this diversity the theoretical and empirical literature on the competition-stability nexus in banking is surveyed. It turns out that the widely accepted trade-off between competition and stability does not generally hold.

Keywords: Bank competition, antitrust policies, mergers & acquisitions, financial stability, banking supervision

JEL Classification: G21, G28, G34, K21, L4

Suggested Citation

Carletti, Elena and Hartmann, Philipp, Competition and Stability: What's Special About Banking? (May 2002). ECB Working Paper No. 146. Available at SSRN: https://ssrn.com/abstract=357880

Elena Carletti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Philipp Hartmann (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
(49 69) 1344 7356 (Phone)
(49 69) 1344 8553 (Fax)

Centre for Economic Policy Research (CEPR) - International Macroeconomics

London
United Kingdom

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