Bank competition and stability: cross-country heterogeneity

Thorsten Beck (), Olivier De Jonghe () and Glenn Schepens ()

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: This paper documents a large cross-country variation in the relationship between bank competition and stability and explores market, regulatory and institutional features that can explain this heterogeneity. Combining insights from the competition-stability and regulation-stability literatures, we develop a unied framework to assess how regulation, supervision and other institutional factors may make it more likely that the data favor the charter-value paradigm or the risk-shifting paradigm. We show that an increase in competition will have a larger impact on banks’ risk taking incentives in countries with stricter activity restrictions, more homogenous market structures, more generous deposit insurance and more effective systems of credit information sharing.

Keywords: Competition; Stability; Banking; Herding; Deposit Insurance; Information Sharing; Risk Shifting (search for similar items in EconPapers)
JEL-codes: G21 G28 L51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-com, nep-fmk, nep-ias and nep-reg
Date: 2011-08
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Persistent link: http://EconPapers.repec.org/RePEc:rug:rugwps:11/732

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