Financial Stability and Market Structure: International Evidence

Marcos Soares da Silva () and Jose Angelo Divino
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Marcos Soares da Silva: Banco Central do Brasil

Brazilian Review of Finance, 2012, vol. 10, issue 1, 7-29

Abstract: Although the economic theory recognizes the ambiguous relationship between market structure and stability of the bank sector, some models, such as the one of competition-fragility by Allen and Gale (2004), suggest that increasing competition leads financial institutions to take more risks. As a result, financial markets that are more concentrated also present higher financial stability. To assess this hypothesis, we estimate a dynamic panel data model for 41 countries in the period from 1987 to 2007. The econometric model included covariates for level of income, characteristics of the financial market, economic environment, and macro prudential regulation. We used the following databases: “A new database on financial development and structure” and “Bank regulation and supervision”, from the World Bank, and “Systemic banking crises: a new database”, from the International Monetary Fund. The results indicate that the greater the market concentration the higher the stability of the banking system.

Keywords: Financial stability; Market structure; Dynamic panel data (search for similar items in EconPapers)
JEL-codes: C23 E44 G15 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:brf:journl:v:10:y:2012:i:1:p:7-29

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