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On the optimality of bank competition policy

Ioannis G. Samantas

International Review of Financial Analysis, 2017, vol. 54, issue C, 39-53

Abstract: This study examines whether the effect of market structure on financial stability is persistent, subject to current regulation and supervision policies. The methodology of Sala-I-Martin (1997) is employed over a sample of 2450 banks operating within the EU-27 during the period 2003–2010. The results show a potential trade-off between market power and soundness, and how possible it is to regulate this trade-off above 21% markups. Financial stability appears more pronounced in markets of less concentration, where policies lean towards limited restrictions on non-interest income, official intervention in bank management and book transparency. Regulation and competition can act as substitute or complementary policies vis-à-vis a more stable financial system with less competition distortions.

Keywords: Market power; Financial stability; Regulation; Extreme bound analysis (search for similar items in EconPapers)
JEL-codes: D24 D4 G21 L11 L51 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:finana:v:54:y:2017:i:c:p:39-53