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BANK COMPETITION AND FINANCIAL STABILITY: MUCH ADO ABOUT NOTHING?
Author(s) -
Zigraiova Diana,
Havranek Tomas
Publication year - 2016
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/joes.12131
Subject(s) - nexus (standard) , competition (biology) , stability (learning theory) , economics , financial stability , econometrics , bayesian probability , statistics , computer science , financial system , mathematics , ecology , biology , machine learning , embedded system
The theoretical literature gives conflicting predictions on how bank competition should affect financial stability, and dozens of researchers have attempted to evaluate the relationship empirically. We collect 598 estimates of the competition‐stability nexus reported in 31 studies and analyse the literature using meta‐analysis methods. We control for 35 aspects of study design and employ Bayesian model averaging to tackle the resulting model uncertainty. Our findings suggest that the definition of financial stability and bank competition used by researchers influences their results in a systematic way. The choice of data, estimation methodology, and control variables also affects the reported coefficient. We find evidence for moderate publication bias. Taken together, the estimates reported in the literature suggest little interplay between competition and stability, even when corrected for publication bias and potential misspecifications.