Does Banking Market Power Matter on Financial (In)Stability? Evidence from the Banking Industry MENA Region

Widede Labidi and Sami Mensi

No 908, Working Papers from Economic Research Forum

Abstract: The various financial crises during the last two decades, and particularly since the 2007-2008 Global Financial Crisis, have revealed the complexity of the interaction between bank market structure, regulation and the stability of the banking industry. Due to its effects on financial stability, banking market structure has been a focus of academic and policy debates of which we prefer the market power paradigm. More precisely, the impact of competition and market concentration on the probability of financial crisis emerges as a crucial topic. Despite their importance, little is known about the relationship between Banking Market Power and Bank Soundness of banks in the MENA region. This paper tries to overcome the tradeoff between banking market power and financial (in) stability among 157 commercial banks chosen from 18 countries in the MENA region between 2000 and 2008. The results indicate that although the banks operate in a competitive market, they suffer from financial instability. The results also reveal a non-significant negative relationship between the rather low degree of market power and financial instability. In other words, we concluded that financial instability is not affected by competition in the banking market in the MENA region.

Pages: 18
Date: 2015-05, Revised 2015-05
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