Market power and banking failures

Does Concentration Matter for Bank Stability? Evidence from the Albanian Banking Sector

“…Our results also corroborate findings by Fu, et al, (2014). This means that the performance of economic activity play relatively a crucial role for bank stability behaviour and at the same time banks place arelative consider manner to the economic conditions in which they operate, since an upward movements in economic activity would improve the situation of the banking system through a higher financial intermediation or for low risks related to bank sovereignty risks 9 . At the same time, the magnitude of the coefficient higher than unitary is possible due to the fact that as a scale variable it captures the effect of other variables namely, exchange rate and/or inflation pressure.…”

“…Yet it is also statistically significant at conventional level. The size of the parameter suggests that there exists a reverse relationship between bank stability and sov- 9 These results are relatively similar to the inclusion of GDP with no lags effect.…”

“…Recently, in addition to Caminal and Matutes, (2002), Martinez-Miera and Repullo (2010) encompass both of these competing approaches by proposing a nonlinear relationship between concentration on the assumption that less concentration may reduce the borrower's probability of default (risk-shifting effect), but also the interest payments from performing loans, which serve as a buffer to cover loan losses (margin effects). They find evidence that a U-shaped relationship between concentration and stability could exist.…”

Bank Competition and Financial (In)Stability in Europe: A Sensitivity Analysis

“…Caminal and Matutes (2002) found that monopolistic markets, bearing the costs of monitoring, tend to be more susceptible to risky loans and thereby subsequent failures. Thus, failing credit rationing, bank willingness to loan out places the bank course in jeopardy.…”

Bank Market Power and Firm Performance

“…If banks with market power also have a superior screening ability to spot these good investment ideas, funding these projects will be easier for them than for their competitors. Combined with the fact that banks with market power have better screening (Chan, Greenbaum and Thakor, 1986) and monitoring capacity or exhibit greater monitoring effort (Matutes and Caminal, 2002), the credit provision can improve the performance of the borrowing firms. The main reasons for this positive outcome is the availability of credit to fund a promising investment opportunity and the screening and monitoring advantages of banks with market power that safeguard the borrowing firm against suboptimal project selection and loan default.…”