Competition and Scope of Activities in Financial Services

Posted: 29 Feb 2008

See all articles by Stijn Claessens

Stijn Claessens

Bank for International Settlements (BIS)

Daniela Klingebiel

World Bank - Policy Unit


This article analyzes the costs and benefits of different degrees of competition and different configurations of permissible activities in the financial sector and discusses the related implications for regulation and supervision. Theory and experience demonstrate the importance of competition for efficiency and confirm that a competitive environment requires a contestable system-meaning one that is open to competition-but not necessarily a large number of institutions. A competitive banking system can improve the distribution of consumer credit, enhance the corporate sector's access to financing, and mitigate the risks of financial crises. In an open market, in which services and products are provided in response to market signals, financial institutions respond by offering a wider scope of financial services. The optimal institutional design for supervisory functions is less obvious.

Suggested Citation

Claessens, Stijn and Klingebiel, Daniela, Competition and Scope of Activities in Financial Services. World Bank Research Observer, Vol. 16, No. 1, pp. 19-40, 2001. Available at SSRN:

Stijn Claessens (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel

Daniela Klingebiel

World Bank - Policy Unit ( email )

1818 H Street NW
Room MC 9-903
Washington, DC 20433
United States
202-473-7470 (Phone)
202-522-2031 (Fax)

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