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State-Aid, Stability and Competition in European Banking

Franco Fiordelisi (), Davide Salvatore Mare () and Philip Molyneux ()

MPRA Paper from University Library of Munich, Germany

Abstract: 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)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn, nep-com, nep-cse, nep-eec and nep-eff
Date: 2015-09
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