Credit market concentration and systemic risk in Europe

Merike Kukk, Alari Paulus and Nicolas Reigl ()

No wp2022-4, Bank of Estonia Working Papers from Bank of Estonia

Abstract: We assess empirically the relationship between credit market concentration and a novel country-level systemic risk indicator that has been developed at the European Central Bank. We find a weakly U-shaped relationship between market concentration and systemic risk for Western European countries, where very low and high levels of market concentration are associated with higher systemic risk. Cumulative estimates with dynamic models show that systemic risk has a persistent negative response to an increase in market concentration from low and median levels of concentration. Local projection estimates for the period preceding the global financial crisis also suggest that an increase in market concentration may have further added to systemic risk at a time when it was building up in countries with high banking concentration, demonstrating the complexity of the relationship between systemic risk and market concentration

Keywords: systemic risk; financial stability; credit institutions; credit growth; market concentration (search for similar items in EconPapers)
JEL-codes: C22 C54 E58 G10 G21 (search for similar items in EconPapers)
Date: 2022-03-24, Revised 2022-03-24
New Economics Papers: this item is included in nep-cba, nep-com, nep-eec, nep-fdg, nep-mac and nep-rmg
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Citations: View citations in EconPapers (1)

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