Concentration in the Banking Sector and Financial Stability PDF Download
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Author: Pietro Calice
Publisher:
ISBN:
Category :
Languages : en
Pages : 41
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Book Description
Theory suggests that the effect of banking market concentration on financial stability is mediated by several competing variables. Using a sample of 68 countries from 1997 to 2015, this paper proposes a unified empirical framework to test for the simultaneous presence and impact of the mediators through which concentration is expected to impact financial stability. The results indicate that the magnitude and net effect of the mediators depend upon the level of concentration. At lower levels of concentration, increasing concentration improves banking system stability via profitability. At higher levels of concentration, increasing concentration makes the banking system more fragile because of the cost of credit, diversification and the ease of monitoring. For intermediate levels, concentration has no significant effect on financial stability, as the competing moderators cancel each other out. The results suggest that an intermediate level of concentration may be optimal for welfare.
Author: Pietro Calice
Publisher:
ISBN:
Category :
Languages : en
Pages : 41
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Book Description
Theory suggests that the effect of banking market concentration on financial stability is mediated by several competing variables. Using a sample of 68 countries from 1997 to 2015, this paper proposes a unified empirical framework to test for the simultaneous presence and impact of the mediators through which concentration is expected to impact financial stability. The results indicate that the magnitude and net effect of the mediators depend upon the level of concentration. At lower levels of concentration, increasing concentration improves banking system stability via profitability. At higher levels of concentration, increasing concentration makes the banking system more fragile because of the cost of credit, diversification and the ease of monitoring. For intermediate levels, concentration has no significant effect on financial stability, as the competing moderators cancel each other out. The results suggest that an intermediate level of concentration may be optimal for welfare.
Author: Marcel Canoy
Publisher:
ISBN:
Category : Banks and banking
Languages : en
Pages : 174
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Book Description
The banking sector in Europe is subject to continuous change. Banks are taking up new types of business in order to diversify their risk; new players such as insurance companies, credit card providers, and non-financial companies enter market segments which used to be the territory of commercial banks; and banks increasingly operate outside their home country or merge with cross-border partners. These developments, triggered by new information technology, disintermediation, deregulation, and the arrival of the Euro, change the landscape in the banking sector and raise a number of policy issues. What are the implications for competition among banks? How can financial stability best be maintained in this changing market? Is there a conflict between increasing competition among banks and stability?
Author: OECD
Publisher: OECD Publishing
ISBN: 9264120564
Category :
Languages : en
Pages : 87
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Book Description
This report examines the interplay between banking competition and financial stability, taking into account the experiences in the recent global crisis and the policy response to it. The report has been prepared by members of the Directorate of ...
Author:
Publisher: World Bank Publications
ISBN:
Category :
Languages : en
Pages : 48
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Book Description
Author: Dr. Rabi N. Mishra
Publisher:
ISBN:
Category :
Languages : en
Pages : 31
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Book Description
Both the country experiences and the academic debate suggest that concentration and competition have ambiguous effects on financial stability and as such, there is no clear conclusion on the validity of either the competition-stability or the competition-fragility hypotheses. However, it would not be entirely correct to either conclude that these two different strands of the literature yield opposing predictions regarding the effects of competition and market power on banking stability. The visible 'trade-off' needs to be addressed by suitable revisit of the 'binding constraint' which in this case could be the regulatory competition policy. The standard response to conflicting theoretical predictions is to let the data speak and that is what was done for Oman in this paper.The results of the paper are in line with the earlier works on the GCC countries and the World Bank. The concentration indicator proxied by the CR-2 total assets, i.e., the concentration of top two banks in total bank assets is seen to have potentials to contribute negatively to banking stability. This is in sync with the standard conclusions in the literature on monopolistic banking systems with level of high concentration. This relationship has profound implications for regulatory policy making in relation to concentration, competition and financial stability. In view of the latter being a public good and public policy goal, the need for its revisit cannot be overemphasized. After all, it is not market structure or competition per se, but a regulatory framework sans encouraging incentives which in turn drives fragility.
Author: Mr.Gianni De Nicolo
Publisher: International Monetary Fund
ISBN: 1463927290
Category : Business & Economics
Languages : en
Pages : 39
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Book Description
We study versions of a general equilibrium banking model with moral hazard under either constant or increasing returns to scale of the intermediation technology used by banks to screen and/or monitor borrowers. If the intermediation technology exhibits increasing returns to scale, or it is relatively efficient, then perfect competition is optimal and supports the lowest feasible level of bank risk. Conversely, if the intermediation technology exhibits constant returns to scale, or is relatively inefficient, then imperfect competition and intermediate levels of bank risks are optimal. These results are empirically relevant and carry significant implications for financial policy.
Author: Jiahong Gao
Publisher:
ISBN:
Category : Banking
Languages : en
Pages : 209
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Book Description
The focus of my dissertation is to study how the industrial organization of the banking sector affects the risk-taking behavior of financial intermediaries and the degree of instability within the banking system. In the first chapter, I ask whether the notion that market concentration promotes stability survives when the government intervention during a crisis is properly taken into account. To this end, I study suspension policies in an environment without commitment, following Ennis and Keister (2009). When the BA only values the welfare of depositors, the degree of fragility is independent of the competitive structure of the banking system. However, having a BA that puts some weight on the monopolist's welfare can serve as a commitment device in suspending payments earlier to protect bank profits, which reduces fragility under a monopoly. The second chapter investigates how the industrial organization of the banking sector may be associated with different triggers for the system to be unstable. In particular, my analysis is based on a modern version of the Diamond and Dybvig (1983) framework in which a self-fulfilling run occurs at a non-trivial probability and banks lack commitment in determining the structure of liabilities as in Ennis and Keister (2010). I find that the possibility that the monopolistic bank may lose its rents in times of stress encourages it to be relatively illiquid. As a result, a monopoly is more stable (fragile) than perfect competition if the ex-ante probability of a financial crisis is below (above) some threshold. The last chapter examines the effects of bank failures and market concentration on credit market activity across United States. In particular, I employ a recent 17-year panel of all FDIC-insured commercial banks over the period 1994Q3 to 2010Q4 and construct state-specific measures of bank failures and deposit concentration. Using a seemingly unrelated regressions (SUR) model, I find that over the full sample, banks issued less loans if the likelihood of a bank failure in a given state increased. Further, banks in states with higher degrees of concentration also issued less loans. Interestingly, there appears evidence that market concentration serves as a buffer against instability.
Author: Jacob Bikker
Publisher: Routledge
ISBN: 1136013202
Category : Business & Economics
Languages : en
Pages : 225
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Book Description
The 2008 credit crisis started with the failure of one large bank: Lehman Brothers. Since then the focus of both politicians and regulators has been on stabilising the economy and preventing future financial instability. At this juncture, we are at the last stage of future-proofing the financial sector by raising capital requirements and tightening financial regulation. Now the policy agenda needs to concentrate on transforming the banking sector into an engine for growth. Reviving competition in the banking sector after the state interventions of the past years is a key step in this process. This book introduces and explains a relatively new concept in competition measurement: the performance-conduct-structure (PCS) indicator. The key idea behind this measure is that a firm’s efficiency is more highly rewarded in terms of market share and profit, the stronger competitive pressure is. The book begins by explaining the financial market’s fundamental obstacles to competition presenting a brief survey of the complex relationship between financial stability and competition. The theoretical contributions of Hay and Liu and Boone provide the theoretical underpinning for the PCS indicator, while its application to banking and insurance illustrates its empirical qualities. Finally, this book presents a systematic comparison between the results of this approach and (all) existing methods as applied to 46 countries, over the same sample period. This book presents a comprehensive overview of the knowns and unknowns of financial sector competition for commercial and central bankers, policy-makers, supervisors and academics alike.
Author: International Monetary Fund. Monetary and Capital Markets Department
Publisher: International Monetary Fund
ISBN: 1484387473
Category : Business & Economics
Languages : en
Pages : 96
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Book Description
Since the Brazil 2012 FSAP, the financial system has been stable despite the deep recession. The resiliency of the banking system was supported by high profitability, buoyed by large interest margins. While the financial system has grown since the 2012 FSAP, its structure remains largely unchanged. The system is dominated by large, vertically-integrated financial conglomerates and concentrated in liquid short-term instruments. The public sector continues to play a dominant role in the financial sector, and its interconnectedness. Banks are broadly resilient to severe macrofinancial shocks. Current high profits and capital ratios support the resiliency of banks under a severe stress test scenario. Under the stress scenario, small capital shortfalls result; banks would nevertheless experience reduced income, including from market loss on government bonds, and high credit losses on exposures to the corporate sector which, despite recent improvement, is still vulnerable to shocks. This benign outcome deteriorates if their capital is adjusted for deferred tax assets. Moreover, some banks are exposed to concentration risk. Some actions are still needed to address bank-specific risk profiles to boost their resilience. Banks are generally well-positioned to manage short-term and medium-term liquidity pressures and interbank contagion seems limited.
Author: Jovi Clemente Dacanay
Publisher: Palgrave Macmillan
ISBN: 9783031595981
Category : Business & Economics
Languages : en
Pages : 0
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Book Description
This book aims to form part of the growing literature on the banking system in developing countries in its aim to show the levels of stability in the banking sector of small economies. Any banking system is vulnerable to economic distress but one supported by universal and commercial banks that are efficient, stable, and which enjoy sufficient market power is most likely to withstand economic turmoil. Such is the Philippines’ Universal and Commercial Banking system, which displayed remarkable resilience to unprecedented economic shock. Using data from 2005 to 2019, the five chapters of this work delve into the industrial organization framework of the banking industry in the Philippines, offering researchers, graduate and undergraduate students, and academics the first comprehensive research on bank competition, concentration, efficiency and financial stability in the Philippines.
