Bank competition and crises revisited: New results

Diallo, Boubacar

doi:10.1016/j.econlet.2015.02.015

Cited by 39 publications

(29 citation statements)

References 26 publications

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“…Our study differs from recent studies that employ either on a single economy such as Mohsni and Otchere (2018) on selected Canadian banks, an economic group such as Davis and Karim (2018) on European countries, or an international sample such as Diallo (2015). This yielded more than 40,400 bank-year observations from 7,227 banks.…”

Section: Introductionmentioning

confidence: 94%

“…This yielded more than 40,400 bank-year observations from 7,227 banks. Our study differs from recent studies that employ either on a single economy such as Mohsni and Otchere (2018) on selected Canadian banks, an economic group such as Davis and Karim (2018) on European countries, or an international sample such as Diallo (2015). The choice of these countries is motivated by their greater homogeneity because the banking sectors are characterized by similar supplementary factors affecting competition such as entry/exit barriers, liberalizing product restrictions, abolishing restrictive market definitions, and eliminating restrictions (Claessens, 2009).…”

Section: Introductionmentioning

confidence: 99%

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Bank competition, stability, and intervention quality

et al. 2018

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We use a flexible semi‐parametric estimation approach and a sample of 7,227 U.S., U.K., and Canadian banks for 2009–2015 to provide evidence that banking stability is non‐linearly determined by competition. We show that stability is not monotonic against competition, and may increase and decrease at high competition, has a mixed behaviour at medium competition, and increases at low competition. This non‐monotonic stability behaviour at different competition levels is attributed to the intervention quality, which is found to be an important determinant of the competition–stability relation. It is non‐linearly related to and being revised at different competition levels. As intervention is a policy variable, its level can be adjusted to reduce the competition effects on stability. We illustrate that for the U.S. banking sector, the intervention quality has to hedge these competition effects. Regulators should treat intervention quality as a “hedging instrument” against the destabilizing competition effects.

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Section: Introductionmentioning

confidence: 94%

Section: Introductionmentioning

confidence: 99%

Bank competition, stability, and intervention quality

et al. 2018

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“…However, the empirical findings do not all lead to the same conclusion. Indeed, while some cross-country analyses (see, for instance, Beck et al, 2006) argue that banking crises are less likely in economies with more concentrated banking systems, others show on the contrary that competitive banking sectors are less prone to systemic banking crises and exhibit increased time to crisis (see, for instance, Schaeck et al, 2009).The recent empirical investigation by Diallo (2015) seems to support the competition-fragility view, as it considers a large sample of emerging and industrial economies and uses different measures of bank competition and finds the opposite results to those of Schaeck et al (2009). Diallo (2015) shows that bank competition increases the probability of a systemic banking crisis occurring and that it is also positively related to the duration of the crisis.…”

Section: Literature Reviewmentioning

confidence: 99%

Banking sector concentration, competition and financial stability: the case of the Baltic countries

Cuestas

Lucotte

Reigl

2019

Post-Communist Economies

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This paper empirically assesses the potential nonlinear relationship between competition and bank risk for a sample of commercial banks in the Baltic countries over the period 2000-2014. Competition is measured by two alternative indexes, the Lerner index and the market share, while we consider the Z-score and loan loss reserves as proxies for bank risk. In line with the theoretical predictions of Martinez-Miera and Repullo (2010), we find an inverse U-shaped relationship between competition and financial stability. This then means that above a certain threshold, the lack of competition is likely to exacerbate the individual risk-taking behaviour of banks, and could be detrimental to the stability of the banking sector in the Baltic countries. The threshold is around 0.60 for the Lerner index, and close to 50% for market share in terms of assets. The policy implications are that the existence of such a threshold suggests that the future evolution of the structure of the banking industry in these countries is of critical importance. Specifically, this implies that policy-makers should place greater emphasis on mergers and acquisitions to avoid any significant increase of banking sector concentration.

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“…Banking industry concentration is measured with Herfindahl index (hhi) where higher values of this index represent higher industry concentration and vice versa. Recent literature finds that competition is detrimental to banking sector [70]. We include inflation and GDP growth as macroeconomic variables.…”

Section: Robustness Tests: Industry and Macroeconomic Control Variablesmentioning

confidence: 99%

Capital Regulation, the Cost of Financial Intermediation and Bank Profitability: Evidence from Bangladesh

Zheng

Rahman

Begum

et al. 2017

JRFM

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Abstract:In response to the recent global financial crisis, the regulatory authorities in many countries have imposed stringent capital requirements in the form of the BASEL III Accord to ensure financial stability. On the other hand, bankers have criticized new regulation on the ground that it would enhance the cost of funds for bank borrowers and deteriorate the bank profitability. In this study, we examine the impact of capital requirements on the cost of financial intermediation and bank profitability using a panel dataset of 32 Bangladeshi banks over the period from 2000 to 2015. By employing a dynamic panel generalized method of moments (GMM) estimator, we find robust evidence that higher bank regulatory capital ratios reduce the cost of financial intermediation and increase bank profitability. The results hold when we use equity to total assets ratio as an alternative measure of bank capital. We also observe that switching from BASEL I to BASEL II has no measurable impact on the cost of financial intermediation and bank profitability in Bangladesh. In the empirical analysis, we further observe that higher bank management and cost efficiencies are associated with the lower cost of financial intermediation and higher bank profitability. These results have important implications for bank regulators, academicians, and bankers.

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Bank competition and crises revisited: New results

Cited by 39 publications

References 26 publications

Bank competition, stability, and intervention quality

Bank competition, stability, and intervention quality

Banking sector concentration, competition and financial stability: the case of the Baltic countries

Capital Regulation, the Cost of Financial Intermediation and Bank Profitability: Evidence from Bangladesh

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