Market concentration and the likelihood of financial crises

Lucas Bretschger and Vivien Kappel ()
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Vivien Kappel: CER-ETH - Center of Economic Research at ETH Zurich, Switzerland

No 10/138, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: According to theory, market concentration affects the likelihood of a financial crisis in different ways. The “concentration-stability” and the “concentrationfragility” hypotheses suggest opposing effects operating through specific channels. Using data of 160 countries for the period 1970-2007, this paper empirically tests these indirect effects of financial market structure. We set up a simultaneous system in order to jointly estimate financial stability and the relevant channel variables as endogenous variables. Our findings provide support for the assumption of channel effects in general and both the concentrationstability and the concentration-fragility hypothesis in particular. The effects are found to vary between high and low income countries.

Keywords: Market Concentration; Financial Crisis; Systemic Crisis (search for similar items in EconPapers)
JEL-codes: E32 G01 G21 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2010-09
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Journal Article: Market concentration and the likelihood of financial crises (2012)
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