Banking Competition and Capital Ratios

Author/Editor:

Martin Cihak ; Klaus Schaeck

Publication Date:

September 1, 2007

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We use data for more than 2,600 European banks to test whether increased competition causes banks to hold higher capital ratios. Employing panel data techniques, and distinguishing between the competitive conduct of small and large banks, we show that banks tend to hold higher capital ratios when operating in a more competitive environment. This result holds when controlling for the degree of concentration in banking systems, inter-industry competition, characteristics of the wider financial system, and the regulatory and institutional environment.

Series:

Working Paper No. 2007/216

Subject:

Bank soundness Banking Capital adequacy requirements Commercial banks Competition Deposit insurance Financial institutions Financial markets Financial regulation and supervision Financial sector policy and analysis Loan loss provisions

English

Publication Date:

September 1, 2007

ISBN/ISSN:

9781451867800/1018-5941

Stock No:

WPIEA2007216

Pages:

40

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