Bank competition and financial (in)stability in Europe: A sensitivity analysis

Samantas, Ioannis (2013): Bank competition and financial (in)stability in Europe: A sensitivity analysis.

Abstract

This study examines the effect of market structure variables on stability subject to regulation and supervision variables. The Extreme Bound Analysis (EBA) is employed over a sample of banks operating within the enlarged European Union during the period 2002-2010. The results show an inverse U-shaped association between market power and bank soundness and stabilizing tendency in markets of less concentration, where policies lean towards limited restrictions on non-interest bearing activities, official intervention to bank management and book transparency. 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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Market power; financial stability; regulation; extreme bound analysis
• Subjects: D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity; D - Microeconomics > D4 - Market Structure, Pricing, and Design; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation

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