Are Competitive Banking Systems Really More Stable?

Bandaranayake, Samangi; Das, Kuntal K.; Reed, W. Robert

doi:10.1561/104.00000061

Cited by 3 publications

(6 citation statements)

References 29 publications

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“…The duration model measures the time to transition from a sound banking system to the occurrence of a systemic crisis. Any variable that is positively associated with stability will have a positive coefficient in the duration analysis, and this (a positive coefficient) suggests a longer time to a systemic crisis (Bandaranayake et al, 2019). The survival function of a banking system is:…”

Section: Methods Of Estimationmentioning

confidence: 99%

“…Logit estimation is also widely used in the literature to estimate the probability of experiencing a banking crisis (Beck et al, 2006;Demirgüç-Kunt & Detragiache, 1998Diallo, 2015). In the logit model, any variable that positively contributes to stability will have a negative coefficient, as it explains an increase in a variable associated with a lower probability of a crisis (Bandaranayake et al, 2019)…”

Section: Methods Of Estimationmentioning

confidence: 99%

“…The Boone indicator and Lerner index are considered as proxy measures of bank competition. Bandaranayake et al (2019), Schaeck et al (2009) control for macroeconomic environment, legal origin of countries, and for economic development when examining the relationship between bank competition and financial stability. This study considers same control variables to validate the results of the previous two studies.…”

Section: Data and Variables Of The Studymentioning

confidence: 99%

“…It is important to empirically investigate the findings of Zigraiova and Havranek (2016) to confirm the reasons for this debatable issue and to suggest potential regulatory actions to maintain financial stability that can be implemented across countries. Bandaranayake, Das, and Reed (2019) empirically examined the findings of Zigraiova and Havranek (2016) using the systemic banking crises database of Laeven and Valencia (2012) and did not find results supporting either the "competition-stability" view or "competition-fragility" view. Therefore, the purpose of this study is to further examine the findings of previous authors using a different sample of countries, in a different sample period, using several proxy measures of bank competition and financial stability, and with various estimation techniques.…”

Section: Introductionmentioning

confidence: 99%

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How Does Bank Competition Affect Systemic Banking Crises?

Bandaranayake

2019

Colombo Bus. J

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Literature present conflicting views on the effect of bank competition on financial stability. Some argue that competition increases adverse shocks in the financial system while others argue that it reduces the likelihood of such events. The purpose of this study is to further examine this relationship using a more recent systemic banking crises database of Laeven and Valencia (2018). There are 61 countries which had experienced systemic crises during 1996-2017. This study used Lerner index and Boone indicator as proxy measures of competition and three estimation techniques to estimate the relationship. The results indicate that the effect of competition on financial stability varies with estimation techniques and proxy measures of competition and stability. Lerner index indicates that competition increases financial instability while Boone indicator shows the opposite. Thus, this study concludes with mixed evidence on the relationship between bank competition and financial stability.

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Section: Methods Of Estimationmentioning

confidence: 99%

Section: Methods Of Estimationmentioning

confidence: 99%

Section: Data and Variables Of The Studymentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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How Does Bank Competition Affect Systemic Banking Crises?

Bandaranayake

2019

Colombo Bus. J

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“…This result can be justified with the explanation that a relatively weaker competition tends to increase the relevance of the bank's risk-taking behavior. Moreover, Bandaranayake et al (2018) point out that a greater portion of the banking competition is associated with smaller systematic risks.…”

Section: Literature Reviewmentioning

confidence: 99%

Bank competition in China: a blessing or a curse for financial system?

Qin

Rizvi

et al. 2020

Economic Research-Ekonomska Istraživanja

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Owing to a lack of consensus on whether the competition among the banks brings stability, or vulnerability in the financial system, this research is aimed towards investigating the Chinese banking industry. For this purpose, we have used the Granger and subsample time varying rolling window, in order to estimate the dynamic causality of the competition in the banking sector, and the systematic risk factors that follow, in China. The purpose of exploring the two-way causality is to make the banking system more stable, and also to provide new and first-hand evidence that can aid in reducing the occurrence of systematic risks. The results show that the competition in the banking sector has a negative impact on the systematic risk. This means that the increased competition in the banking sector will eventually lead to a reduction in the systematic risk. The results of the study are supported by the competition-stability hypothesis. Also, following the results, the policy direction we propose is that the banks may aim at reducing their systematic risks. They may achieve this by increasing their market share and accelerating transformation, in order to improve their competitiveness, which will help the banking system in China to achieve a sustainable form of stability. Moreover, our findings will also be helpful for the Chinese Ministry of Commerce (MOFCOM), which has been, over the years, in the process of developing an assessment framework for bank mergers, while also trying to minimize the tradeoff between competition and financial stability.

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Another Look at ‘Bank Competition and Financial Stability: Much Ado About Nothing’?

Bandaranayake

Das

Reed

2020

Journal of Economic Surveys

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This study replicates Zigraiova and Havranek's (2016) meta‐analysis of banking competition and financial stability. It performs multiple types of replications: a ‘Reproduction’ replication where Z&H's data and code are verified to reproduce the results of their study; a ‘Repetition’ replication where the studies used by Z&H are independently recoded and then re‐analysed; an ‘Extension’ replication where additional studies on banking competition and stability are analysed; and a ‘Robustness Analysis’ where we check Z&H's results using an alternative empirical procedure. Our analysis strongly confirms Z&H's main finding that competition in the banking sector has an economically negligible effect on financial stability. This result is consistently confirmed across a variety of replication analyses. Most impressively, we confirm their finding even when we analyse a completely independent set of 35 studies not included in Z&H's meta‐analysis. Our results for Z&H's other findings are less supportive. As the first comprehensive replication of a meta‐analysis, this study also provides insights into the robustness of meta‐analysis. We find that meta‐regression analysis, where estimated effects are related to data, estimation, and study characteristics, is sensitive to how data are coded and to the choice of estimation procedure; and that this sensitivity extends to ‘best practice’ estimates.

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Are Competitive Banking Systems Really More Stable?

Cited by 3 publications

References 29 publications

How Does Bank Competition Affect Systemic Banking Crises?

How Does Bank Competition Affect Systemic Banking Crises?

Bank competition in China: a blessing or a curse for financial system?

Another Look at ‘Bank Competition and Financial Stability: Much Ado About Nothing’?

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