Do macro‐prudential policies jeopardize banking competition?

Ali Mirzaei and Tomoe Moore

International Review of Finance, 2021, vol. 21, issue 4, 1511-1518

Abstract: Macro‐prudential policies that are adopted to strengthen the resilience of the financial sector to systemic risk impose additional restrictions on bank lending and other activities, altering the structure of the banking sector. In this article, we empirically investigate the extent to which macro‐prudential instruments affect one of the bank characteristics, bank competition, for a sample of 58 countries. The robust finding is that macro‐prudential policies are adversely affecting bank competition, in particular, this is driven by liquidity‐ and capital‐related instruments. The negative effect can, however, be mitigated in countries with high institutional quality and high bank supervisory powers.

Date: 2021
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https://doi.org/10.1111/irfi.12330

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