This study examines whether the effect of market structure on financial stability is persistent, subject to current regulation and supervision policies. Extreme Bounds Analysis (EBA) is employed over a sample of 2450 banks operating within the EU-27 during the period 2003-2010. The results show an inverse U-shaped association between market power and soundness and a stabilizing tendency in markets of less concentration, where policies lean towards limited restrictions on non-interest income, official intervention in bank management and book transparency. Regulation significantly contributes as a stability channel through which bank competition policy is optimally designed.

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This studyexamines the effect of market structure variables on stability subject to However, in markets with higher share of foreign owned assets, the pattern is inverted. The significant impact of regulatory variables contributes to the ongoing reform as a stability channel of bank competition.

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