State-Aid, Stability and Competition in European Banking
Franco Fiordelisi (),
Davide Salvatore Mare () and
Philip Molyneux ()
MPRA Paper from University Library of Munich, Germany
What is the relationship between bank fragility and competition during a period of market turmoil? Does market power in European banking involve extra-gains after discounting for the cost of government intervention? We answer these questions in the context of Eurozone banking over 2005-2012 and show that greater market power increases bank stability implying aggregate extra-gains of 57% of EU12 gross domestic product for the banking sector after discounting for the costs associated with government intervention. The negative influence of competition on bank stability is non-monotonic and reverses for lower degrees of competition. Capital injections, guarantees and asset relief measures elicit greater bank soundness.
Keywords: Bank Stability; Prudential Regulation; Competition; Global Financial Crisis; European Banking Union; Government Bailouts (search for similar items in EconPapers)
JEL-codes: C23 G21 G28 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:67473
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