Banking Sector Reform, Competition, and Bank Stability: An Empirical Analysis of Transition Countries

Shaofang Li

Emerging Markets Finance and Trade, 2019, vol. 55, issue 13, 3069-3093

Abstract: This study tests the impact of banking sector reform and competition on bank stability based on unbalanced data from 22 transition countries from 1998 to 2016. The initial results not only highlight the positive relationship between market power and bank fragility but also confirm the positive relationship between bank reform and stability. Our findings also show that both higher activity restrictions and more explicit guidelines for asset diversification increase bank stability, but this positive effect significantly weakens for banks with higher market power. More stringent capital requirements in combination with higher market power increase the risk of bank insolvency.

Date: 2019
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DOI: 10.1080/1540496X.2018.1540349

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