Are More Competitive Banking Systems More Stable?
IMF Working Papers, June 1, 2006
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Bibliographic details
- Authors: Martin Cihak, Simon Wolfe, Klaus Schaeck
- Published: June 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451864038.001
Summary
- Provides the first empirical analysis of the cross-country relationship between a direct measure of competitive conduct of financial institutions and banking system fragility.
- Uses the Panzar and Rosse H-Statistic as a measure for competition in 38 countries during 1980-2003.
- Presents evidence that more competitive banking systems are less prone to systemic crises and that time to crisis is longer in a competitive environment.
- Results hold when concentration and the regulatory environment are controlled for and are robust to different methodologies, different sampling periods, and alternative samples.
Methodology and Data
- Competition measure: Panzar and Rosse H-Statistic.
- Sample: 38 countries.
- Sample period: 1980-2003.
- Empirical approach includes controlling for concentration and the regulatory environment and applying alternative methodologies, sampling periods, and samples.
Key Findings
- More competitive banking systems are less prone to systemic crises.
- Time to crisis is longer in a competitive environment.
- Findings are robust to:
- Controls for concentration.
- Controls for the regulatory environment.
- Different methodologies.
- Different sampling periods.
- Alternative samples.