Banking Competition and Capital Ratios

Martin Cihak () and Klaus Schaeck

No 2007/216, IMF Working Papers from International Monetary Fund

Abstract: We use data for more than 2,600 European banks to test whether increased competition causes banks to hold higher capital ratios. Employing panel data techniques, and distinguishing between the competitive conduct of small and large banks, we show that banks tend to hold higher capital ratios when operating in a more competitive environment. This result holds when controlling for the degree of concentration in banking systems, inter-industry competition, characteristics of the wider financial system, and the regulatory and institutional environment.

Keywords: WP; capital adequacy ratio; market share; banking system; asset growth; bank performance; dependent variable; Bank capital ratios; competition; market structure; regulation; i. output; bank capital; bank-year observation; bank ownership structure; bank competition; bank risk; output of bank; banks' capital ratios; bank i.; banking industry; Capital adequacy requirements; Commercial banks; Bank soundness; Loan loss provisions; Europe (search for similar items in EconPapers)
Pages: 40
Date: 2007-09-01
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Citations: View citations in EconPapers (53)

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