Market power and stability of CEE banks

Huljak Ivan ()
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Huljak Ivan: Croatian National Bank, Croatia

Business Systems Research, 2015, vol. 6, issue 2, 74-90

Abstract: Background: In spite of growing number of empirical studies, especially after the start of financial crisis, literature fails to provide conclusive answers on the relationship between bank competition and stability.Objective: We contribute to the existing literature by conducting a bank level analysis of market power implications on CEE bank stability and test weather bank market power increases bank stability.Approach: On the sample of 415 CEE banks from 1997-2012, we use Distribution free approach to generate bank specific market power and efficiency indicators and then run a fixed effects panel regression.Results: We find evidence supporting the Competition - fragility view; banks with more market power are more stable. Also, we find evidence that this stability is a result of lower portfolio risk supporting the franchise value channel.Conclusions: For banks in CEE countries where economic crisis increased risk materialization, increasing competition from the early 2000s, may have been a factor decreasing bank stability which may bear significant implications for upcoming years when competition is likely to increase further.

Keywords: bank competition; bank stability; CEE countries (search for similar items in EconPapers)
JEL-codes: D43 E40 E53 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:bit:bsrysr:v:6:y:2015:i:2:p:74-90

DOI: 10.1515/bsrj-2015-0013

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