Bank Competition and Financial Stability: Much Ado About Nothing?

Diana Zigraiova and Tomas Havranek

No wp1087, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: The theoretical literature gives conflicting predictions on how bank competition should affect financial stability, and dozens of researchers have attempted to evaluate the relationship empirically. We collect 598 estimates of the competition-stability nexus reported in 31 studies and analyze the literature using meta-analysis methods. We control for 35 aspects of study design and employ Bayesian model averaging to tackle the resulting model uncertainty. Our findings suggest that the definition of financial stability and bank competition used by researchers influences their results in a systematic way. The choice of data, estimation methodology, and control variables also affects the reported coefficient. We find evidence for moderate publication bias. Taken together, the estimates reported in the literature suggest little interplay between competition and stability, especially in developing and transition countries, even when corrected for publication bias and potential misspecifications.

Keywords: Bayesian model averaging; bank competition; financial stability; publication selection bias; meta-analysis (search for similar items in EconPapers)
JEL-codes: C11 C83 G21 L16 (search for similar items in EconPapers)
Pages: pages
Date: 2015-01-01
New Economics Papers: this item is included in nep-ban and nep-com
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Citations: View citations in EconPapers (19)

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Related works:
Journal Article: BANK COMPETITION AND FINANCIAL STABILITY: MUCH ADO ABOUT NOTHING? (2016)
Working Paper: Bank Competition and Financial Stability: Much Ado about Nothing? (2015)
Working Paper: Bank Competition and Financial Stability: Much Ado About Nothing? (2015)
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