Bank competition and financial stability: friends or foes ?

Thorsten Beck

No 4656, Policy Research Working Paper Series from The World Bank

Abstract: Theory makes ambiguous predictions about the relationship between market structure and competitiveness of the banking system and banking sector stability. Empirical studies focusing on individual countries provide similarly ambiguous results, while cross-country studies point mostly to a positive relationship between competition and stability in the banking system. Where liberalization and unfettered competition have resulted in fragility, this has been mostly the consequence of regulatory and supervisory failures. The advantages of competition for an efficient and inclusive financial system are strong, and regulatory and supervisory policies should focus on an incentive-compatible environment for banking rather than try to fine-tune market structure or the degree of competition.

Keywords: Banks&Banking Reform; Access to Finance; Emerging Markets; Debt Markets; Labor Policies (search for similar items in EconPapers)
Date: 2008-06-01
New Economics Papers: this item is included in nep-ban and nep-reg
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Citations: View citations in EconPapers (174)

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