How Market Power Influences Bank Failures Evidence from Russia

Zuzana Fungáčová and Laurent Weill

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg

Abstract: There has been a notable debate in the banking literature on the impact of bank competition on financial stability. While the dominant view sees a detrimental impact of competition on the stability of banks, this view has recently been challenged by Boyd and De Nicolo (2005) who see the reverse effect. The aim of this paper is to contribute to this literature by providing the first empirical investigation of the role of bank competition on the occurrence of bank failures. We analyze this issue based on a large sample of Russian banks over the period 2001-2007 and in line with the previous literature we employ the Lerner index as the metric of bank competition. Our findings clearly support the view that tighter bank competition enhances the occurrence of bank failures. The normative implication of our findings is therefore that measures that increase bank competition could undermine financial stability.

Keywords: Bank competition; bank failure; Russia. (search for similar items in EconPapers)
JEL-codes: G21 P34 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ban, nep-cis, nep-com, nep-fmk, nep-reg and nep-tra
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Does competition influence bank failures? (2013)
Working Paper: How market power influences bank failures: Evidence from Russia (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:lar:wpaper:2010-08

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