XXVI Edition

14-15-16 December 2017"

Bank competition, regulations and stability in developed countries

Ozturk Danisman Gamze, Bogazici University

This paper examines the impact of competition on bank stability and how bank regulation variables such as capital requirements, activity restrictions and supervisory power effect bank stability directly and indirectly through competition. We use a sample of 6936 banks in 25 developed countries for the years 2007-2015. Our findings can be listed as i) competition decreases bank stability, ii) higher capital requirements, lower activity restrictions and lower supervisory power directly increase bank stability and iii) while higher capital requirements and greater activity restrictions decreases bank stability in competitive environments, supervisory power seems not to have a relevant indirect impact on the competition-stability relationship. We further do not observe any evidence of non-monotonicity of competition and competition appears to be more harmful to stability during the recent financial crisis period (2007-2009).

Area: Financial Stability

Keywords: Bank Competition, Financial Stability, Regulations, Supervision, Lerner index

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