Are competitive banking systems more stable?

Klaus Schaeck*, Martin Cihak, Simon Wolfe

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)

206 Citations (Scopus)

Abstract

Using the Panzar and Rosse H-statistic as a measure of competition in 45 countries, we find that more competitive banking systems are less prone to experience a systemic crisis and exhibit increased time to crisis. This result holds even when we control for banking system concentration, which is associated with higher probability of a crisis and shorter time to crisis. Our results indicate that competition and concentration capture different characteristics of banking systems, meaning that concentration is an inappropriate proxy for competition. The findings suggest that policies promoting competition among banks, if well executed, have the potential to improve systemic stability.

Original languageEnglish
Pages (from-to)711-734
Number of pages24
JournalJournal of Money, Credit and Banking
Volume41
Issue number4
Early online date13 May 2009
DOIs
Publication statusPublished - Jun 2009

Keywords

  • Banking competition
  • Market structure
  • Regulation
  • Systemic risk

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