Premium
Are Competitive Banking Systems More Stable?
Author(s) -
SCHAECK KLAUS,
CIHAK MARTIN,
WOLFE SIMON
Publication year - 2009
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2009.00228.x
Subject(s) - proxy (statistics) , competition (biology) , statistic , financial crisis , systemic risk , monetary economics , financial stability , economics , business , financial system , macroeconomics , statistics , mathematics , biology , ecology
Using the Panzar and Rosse H‐statistic as a measure of competition in 45 countries, we find that more competitive banking systems are less prone to experience a systemic crisis and exhibit increased time to crisis. This result holds even when we control for banking system concentration, which is associated with higher probability of a crisis and shorter time to crisis. Our results indicate that competition and concentration capture different characteristics of banking systems, meaning that concentration is an inappropriate proxy for competition. The findings suggest that policies promoting competition among banks, if well executed, have the potential to improve systemic stability.