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Bank Stability and Competition: Evidence from Albanian Banking Market

Gerti Shijaku ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyses the inter-temporal competition – stability nexus after the global financial crises. For this reason, the empirical estimation approach follows a five – step procedure. First, we utilise quarterly macroeconomic and balance sheet and income statement data for 16 banks operating in the Albanian banking sector over the period 2008 – 2015. Second, we calculate a new composite index as a measure of bank stability conditions, which includes a wide set of information rather than focusing only on one aspect of risk. Then, we construct a proxy for bank competition such as the Boone indicator. Empirical estimations are based on the General Method of Moments approach. A set of robustness checks include also the use of other alternative proxy of competition such as the Lerner index and the efficient-adjusted Lerner index, profit elasticity and the Herfindahl index. Empirical results strongly support the “competition – stability” view after the global financial crises - that higher degree of competition boosts further bank stability conditions. Results further indicate that greater concentration has also a negative impact on bank stability. Results imply also that bank stability is positively linked with macroeconomic conditions and capital ratio and inverse with operational efficiency. Finally, we do not find a non-linear relationship between competition and stability.

Keywords: Bank stability; Competition; Boone indicator; Panel Data; GMM. (search for similar items in EconPapers)
JEL-codes: C26 E32 E43 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-com, nep-eff and nep-mac
Date: 2017-06
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Published in Eurasian Journal of Business and Economics 10.19(2017): pp. 127-154

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