The impact of bank competition and concentration on bank risk-taking behavior and stability: Evidence from GCC countries

Abdulazeez Y.H. Saif-Alyousfi, Asish Saha and Rohani Md-Rus

The North American Journal of Economics and Finance, 2020, vol. 51, issue C

Abstract: This paper presents a comprehensive assessment of the impact of competition on bank fragility pre and post financial crisis period in the GCC banking market as measured by bank risk-taking behavior and bank stability during the period 1998–2016. Our results indicate that a higher level of bank competition and the greater degree of concentration adds to financial fragility. The findings further shows that during the 2008 crisis, lower bank competition maintain the stability of GCC banks. We also find that lower level of competition and lower concentration in the banking market increases the risk-taking behavior of the low capitalized, low liquid and small banks which add to fragility in the banking system. Our findings suggest that countries with greater capital stringency, greater supervisory power, greater market discipline, and private monitoring, with explicit deposit insurance schemes, higher shareholder protection, and higher legal efficiency decrease banks’ risk-taking and increase their stability. We also find that greater regulatory restrictions and higher creditor protection decrease banks’ stability and increase risk in concerned countries. We find support for both competition-fragility and competition-stability hypotheses in the GCC banking market. The results also confirm that the use of a single measure of competition is insufficient to assess the role of competition in banking stability.

Keywords: Bank competition and concentration; Moral hazard; Bank stability; Regulation; Global financial crisis; Bank characteristics (search for similar items in EconPapers)
JEL-codes: C58 E5 G01 G18 G21 G28 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:51:y:2020:i:c:s106294081830247x

DOI: 10.1016/j.najef.2018.10.015

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