Market Concentration and Income Diversification: Do They Always Promote the Financial Stability of Banking Industry?

Jorge Andrés Munoz Mendoza (), Sandra María Sepúlveda-Yelpo (), Carmen Lissette Veloso-Ramos () and Carlos Delgado ()

Revista Finanzas y Politica Economica, 2020, vol. 12, issue 2, 341-365

Abstract: This paper analyzes the effects of market concentration and income diversification on the financial stabilityof the world banking system. It uses the GMM estimator proposed by Arellano and Bover (1995) to study 206 countries between 1994 and 2015. The results show that market concentration and income diversification have a positive and nonlinear effect on financial stability; and a negative and nonlinear effect on bank risk. The nonlinearity shape suggests that the effects are reversed when the banking industry has a higher market concentration and income diversification. In these cases, lower levels of stability and higher risks would characterize the banking industry. Nonlinearity establishes threshold values that are relevantfor the empirical discussion oriented to an optimal design of financial policies and banking strategies.

Keywords: financial stability; bank risk; market concentration; income diversification. (search for similar items in EconPapers)
JEL-codes: E44 E58 G18 G21 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:col:000443:019644

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