Concentration in the Banking Sector and Financial Stability : New Evidence

Theory suggests that the effect of banking market concentration on financial stability is mediated by several competing variables. Using a sample of 68 countries from 1997 to 2015, this paper proposes a unified empirical framework to test for the s...

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Main Authors:	Calice, Pietro, Leonida, Leone
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2018
Subjects:	BANKING FINANCIAL CRISIS FINANCIAL STABILITY CONCENTRATION MARKET CONCENTRATION LOGIT MODEL COST OF CREDIT DIVERSIFICATION
Online Access:	http://documents.worldbank.org/curated/en/953311539698216215/Concentration-in-the-Banking-Sector-and-Financial-Stability-New-Evidence http://hdl.handle.net/10986/30583

id	okr-10986-30583
recordtype	oai_dc
spelling	okr-10986-305832022-09-17T12:16:29Z Concentration in the Banking Sector and Financial Stability : New Evidence Calice, Pietro Leonida, Leone BANKING FINANCIAL CRISIS FINANCIAL STABILITY CONCENTRATION MARKET CONCENTRATION LOGIT MODEL COST OF CREDIT DIVERSIFICATION Theory suggests that the effect of banking market concentration on financial stability is mediated by several competing variables. Using a sample of 68 countries from 1997 to 2015, this paper proposes a unified empirical framework to test for the simultaneous presence and impact of the mediators through which concentration is expected to impact financial stability. The results indicate that the magnitude and net effect of the mediators depend upon the level of concentration. At lower levels of concentration, increasing concentration improves banking system stability via profitability. At higher levels of concentration, increasing concentration makes the banking system more fragile because of the cost of credit, diversification and the ease of monitoring. For intermediate levels, concentration has no significant effect on financial stability, as the competing moderators cancel each other out. The results suggest that an intermediate level of concentration may be optimal for welfare. 2018-10-16T21:03:34Z 2018-10-16T21:03:34Z 2018-10 Working Paper http://documents.worldbank.org/curated/en/953311539698216215/Concentration-in-the-Banking-Sector-and-Financial-Stability-New-Evidence http://hdl.handle.net/10986/30583 English Policy Research Working Paper;No. 8615 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	BANKING FINANCIAL CRISIS FINANCIAL STABILITY CONCENTRATION MARKET CONCENTRATION LOGIT MODEL COST OF CREDIT DIVERSIFICATION
spellingShingle	BANKING FINANCIAL CRISIS FINANCIAL STABILITY CONCENTRATION MARKET CONCENTRATION LOGIT MODEL COST OF CREDIT DIVERSIFICATION Calice, Pietro Leonida, Leone Concentration in the Banking Sector and Financial Stability : New Evidence
relation	Policy Research Working Paper;No. 8615
description	Theory suggests that the effect of banking market concentration on financial stability is mediated by several competing variables. Using a sample of 68 countries from 1997 to 2015, this paper proposes a unified empirical framework to test for the simultaneous presence and impact of the mediators through which concentration is expected to impact financial stability. The results indicate that the magnitude and net effect of the mediators depend upon the level of concentration. At lower levels of concentration, increasing concentration improves banking system stability via profitability. At higher levels of concentration, increasing concentration makes the banking system more fragile because of the cost of credit, diversification and the ease of monitoring. For intermediate levels, concentration has no significant effect on financial stability, as the competing moderators cancel each other out. The results suggest that an intermediate level of concentration may be optimal for welfare.
format	Working Paper
author	Calice, Pietro Leonida, Leone
author_facet	Calice, Pietro Leonida, Leone
author_sort	Calice, Pietro
title	Concentration in the Banking Sector and Financial Stability : New Evidence
title_short	Concentration in the Banking Sector and Financial Stability : New Evidence
title_full	Concentration in the Banking Sector and Financial Stability : New Evidence
title_fullStr	Concentration in the Banking Sector and Financial Stability : New Evidence
title_full_unstemmed	Concentration in the Banking Sector and Financial Stability : New Evidence
title_sort	concentration in the banking sector and financial stability : new evidence
publisher	World Bank, Washington, DC
publishDate	2018
url	http://documents.worldbank.org/curated/en/953311539698216215/Concentration-in-the-Banking-Sector-and-Financial-Stability-New-Evidence http://hdl.handle.net/10986/30583
_version_	1764472433028366336

Concentration in the Banking Sector and Financial Stability : New Evidence

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