Bank Competition and Financial Stability
Under the traditional "competition-fragility" view, more bank competition erodes market power, decreases profit margins, and results in reduced franchise value that encourages bank risk taking. Under the alternative "com...
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| Format: | Policy Research Working Paper |
| Language: | English |
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World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2008/08/9781899/bank-competition-financial-stability http://hdl.handle.net/10986/6794 |
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okr-10986-67942021-04-23T14:02:32Z Bank Competition and Financial Stability Berger, Allen N. Klapper, Leora F. Turk-Ariss, Rima ACCESS TO CREDIT ALLOCATION OF CREDIT ASSET ALLOCATION ASSET RATIOS ASSETS RATIO BALANCE SHEET BANK ASSETS BANK BEHAVIOR BANK CAPITALIZATION BANK CHARGES BANK COMPETITION BANK CREDIT BANK EQUITY BANK FAILURES BANK LOAN BANK MARKET BANK PROFITABILITY BANK REGULATION BANK RISK BANK SIZE BANKING INDUSTRY BANKING INSTITUTIONS BANKING MARKET BANKING MARKETS BANKING PRODUCTS BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BANKRUPTCY BANKRUPTCY LAWS BANKRUPTCY RISK BANKS BARRIERS TO ENTRY BONDS BUSINESS LOANS BUSINESS SCHOOL CAPITAL BASE CAPITAL REQUIREMENTS CAPITALIZATION CHECKS COLLATERAL COMMERCIAL LOAN COMMERCIAL LOAN MARKET COMPETITIVENESS CREDIT ANALYSIS CREDIT AVAILABILITY CREDIT DERIVATIVES CREDIT INFORMATION CREDIT MARKET CREDITS DEPOSIT DEPOSIT INSURANCE DEPOSITS DOMESTIC BANKS DUMMY VARIABLE ECONOMIC DEVELOPMENT ECONOMIC POLICY EQUITY CAPITAL EXCHANGE RATES FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FINANCIAL CRISES FINANCIAL DATA FINANCIAL FRAGILITY FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL LIBERALIZATION FINANCIAL MARKETS FINANCIAL POLICY FINANCIAL STABILITY FINANCIAL SYSTEM FIXED CAPITAL FOREIGN BANK FOREIGN BANKS GAMBLING GOVERNMENT BANKS HOLDING INCOME INFORMAL ECONOMY INPUT PRICES INSURANCE INTANGIBLE INTEREST RATE INTEREST RATE RISK INTEREST RATES INTERNATIONAL BANK INVESTOR PROTECTION LARGE BANKS LEGAL RIGHTS LEGAL SYSTEMS LOAN LOAN APPLICANTS LOAN CONTRACT LOAN CUSTOMERS LOAN MARKET LOAN MARKETS LOAN PORTFOLIO LOAN PORTFOLIO QUALITY LOAN PORTFOLIOS LOAN RATES MARKET COMPETITION MARKET CONCENTRATION MARKET POWER MARKET STRUCTURE MARKET VALUE MONETARY FUND MONOPOLY MORAL HAZARD MULTINATIONALS NONPERFORMING LOANS OPPORTUNITY COSTS PERSONNEL EXPENSES PORTFOLIO RISK PRIVATE CREDIT PROBABILITY PROBABILITY OF DEFAULT PROFIT MARGINS PROFITABILITY PRUDENTIAL REGULATION PUBLIC ECONOMICS PUBLIC REGISTRY REAL ESTATE RENTS RETAIL RETAINED EARNINGS RETURN RETURN ON ASSETS RETURNS RISK EXPOSURE RISK EXPOSURES RISK MANAGEMENT RISK OF BANK FAILURE RISK TAKING SAFETY NET SALES SALES OF LOANS SAVINGS SECURITIES SMALL BUSINESS SMALL BUSINESS LOANS SUBSIDIARIES TAX VOLATILITY Under the traditional "competition-fragility" view, more bank competition erodes market power, decreases profit margins, and results in reduced franchise value that encourages bank risk taking. Under the alternative "competition-stability" view, more market power in the loan market may result in greater bank risk as the higher interest rates charged to loan customers make it more difficult to repay loans and exacerbate moral hazard and adverse selection problems. But even if market power in the loan market results in riskier loan portfolios, the overall risks of banks need not increase if banks protect their franchise values by increasing their equity capital or engaging in other risk-mitigating techniques. The authors test these theories by regressing measures of loan risk, bank risk, and bank equity capital on several measures of market power, as well as indicators of the business environment, using data for 8,235 banks in 23 developed nations. The results suggest that - consistent with the traditional "competition-fragility" view - banks with a greater degree of market power also have less overall risk exposure. The data also provide some support for one element of the "competition-stability" view - that market power increases loan portfolio risk. The authors show that this risk may be offset in part by higher equity capital ratios. 2012-05-31T20:13:48Z 2012-05-31T20:13:48Z 2008-08 http://documents.worldbank.org/curated/en/2008/08/9781899/bank-competition-financial-stability http://hdl.handle.net/10986/6794 English Policy Research Working Paper No. 4696 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ACCESS TO CREDIT ALLOCATION OF CREDIT ASSET ALLOCATION ASSET RATIOS ASSETS RATIO BALANCE SHEET BANK ASSETS BANK BEHAVIOR BANK CAPITALIZATION BANK CHARGES BANK COMPETITION BANK CREDIT BANK EQUITY BANK FAILURES BANK LOAN BANK MARKET BANK PROFITABILITY BANK REGULATION BANK RISK BANK SIZE BANKING INDUSTRY BANKING INSTITUTIONS BANKING MARKET BANKING MARKETS BANKING PRODUCTS BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BANKRUPTCY BANKRUPTCY LAWS BANKRUPTCY RISK BANKS BARRIERS TO ENTRY BONDS BUSINESS LOANS BUSINESS SCHOOL CAPITAL BASE CAPITAL REQUIREMENTS CAPITALIZATION CHECKS COLLATERAL COMMERCIAL LOAN COMMERCIAL LOAN MARKET COMPETITIVENESS CREDIT ANALYSIS CREDIT AVAILABILITY CREDIT DERIVATIVES CREDIT INFORMATION CREDIT MARKET CREDITS DEPOSIT DEPOSIT INSURANCE DEPOSITS DOMESTIC BANKS DUMMY VARIABLE ECONOMIC DEVELOPMENT ECONOMIC POLICY EQUITY CAPITAL EXCHANGE RATES FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FINANCIAL CRISES FINANCIAL DATA FINANCIAL FRAGILITY FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL LIBERALIZATION FINANCIAL MARKETS FINANCIAL POLICY FINANCIAL STABILITY FINANCIAL SYSTEM FIXED CAPITAL FOREIGN BANK FOREIGN BANKS GAMBLING GOVERNMENT BANKS HOLDING INCOME INFORMAL ECONOMY INPUT PRICES INSURANCE INTANGIBLE INTEREST RATE INTEREST RATE RISK INTEREST RATES INTERNATIONAL BANK INVESTOR PROTECTION LARGE BANKS LEGAL RIGHTS LEGAL SYSTEMS LOAN LOAN APPLICANTS LOAN CONTRACT LOAN CUSTOMERS LOAN MARKET LOAN MARKETS LOAN PORTFOLIO LOAN PORTFOLIO QUALITY LOAN PORTFOLIOS LOAN RATES MARKET COMPETITION MARKET CONCENTRATION MARKET POWER MARKET STRUCTURE MARKET VALUE MONETARY FUND MONOPOLY MORAL HAZARD MULTINATIONALS NONPERFORMING LOANS OPPORTUNITY COSTS PERSONNEL EXPENSES PORTFOLIO RISK PRIVATE CREDIT PROBABILITY PROBABILITY OF DEFAULT PROFIT MARGINS PROFITABILITY PRUDENTIAL REGULATION PUBLIC ECONOMICS PUBLIC REGISTRY REAL ESTATE RENTS RETAIL RETAINED EARNINGS RETURN RETURN ON ASSETS RETURNS RISK EXPOSURE RISK EXPOSURES RISK MANAGEMENT RISK OF BANK FAILURE RISK TAKING SAFETY NET SALES SALES OF LOANS SAVINGS SECURITIES SMALL BUSINESS SMALL BUSINESS LOANS SUBSIDIARIES TAX VOLATILITY |
| spellingShingle |
ACCESS TO CREDIT ALLOCATION OF CREDIT ASSET ALLOCATION ASSET RATIOS ASSETS RATIO BALANCE SHEET BANK ASSETS BANK BEHAVIOR BANK CAPITALIZATION BANK CHARGES BANK COMPETITION BANK CREDIT BANK EQUITY BANK FAILURES BANK LOAN BANK MARKET BANK PROFITABILITY BANK REGULATION BANK RISK BANK SIZE BANKING INDUSTRY BANKING INSTITUTIONS BANKING MARKET BANKING MARKETS BANKING PRODUCTS BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BANKRUPTCY BANKRUPTCY LAWS BANKRUPTCY RISK BANKS BARRIERS TO ENTRY BONDS BUSINESS LOANS BUSINESS SCHOOL CAPITAL BASE CAPITAL REQUIREMENTS CAPITALIZATION CHECKS COLLATERAL COMMERCIAL LOAN COMMERCIAL LOAN MARKET COMPETITIVENESS CREDIT ANALYSIS CREDIT AVAILABILITY CREDIT DERIVATIVES CREDIT INFORMATION CREDIT MARKET CREDITS DEPOSIT DEPOSIT INSURANCE DEPOSITS DOMESTIC BANKS DUMMY VARIABLE ECONOMIC DEVELOPMENT ECONOMIC POLICY EQUITY CAPITAL EXCHANGE RATES FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FINANCIAL CRISES FINANCIAL DATA FINANCIAL FRAGILITY FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL LIBERALIZATION FINANCIAL MARKETS FINANCIAL POLICY FINANCIAL STABILITY FINANCIAL SYSTEM FIXED CAPITAL FOREIGN BANK FOREIGN BANKS GAMBLING GOVERNMENT BANKS HOLDING INCOME INFORMAL ECONOMY INPUT PRICES INSURANCE INTANGIBLE INTEREST RATE INTEREST RATE RISK INTEREST RATES INTERNATIONAL BANK INVESTOR PROTECTION LARGE BANKS LEGAL RIGHTS LEGAL SYSTEMS LOAN LOAN APPLICANTS LOAN CONTRACT LOAN CUSTOMERS LOAN MARKET LOAN MARKETS LOAN PORTFOLIO LOAN PORTFOLIO QUALITY LOAN PORTFOLIOS LOAN RATES MARKET COMPETITION MARKET CONCENTRATION MARKET POWER MARKET STRUCTURE MARKET VALUE MONETARY FUND MONOPOLY MORAL HAZARD MULTINATIONALS NONPERFORMING LOANS OPPORTUNITY COSTS PERSONNEL EXPENSES PORTFOLIO RISK PRIVATE CREDIT PROBABILITY PROBABILITY OF DEFAULT PROFIT MARGINS PROFITABILITY PRUDENTIAL REGULATION PUBLIC ECONOMICS PUBLIC REGISTRY REAL ESTATE RENTS RETAIL RETAINED EARNINGS RETURN RETURN ON ASSETS RETURNS RISK EXPOSURE RISK EXPOSURES RISK MANAGEMENT RISK OF BANK FAILURE RISK TAKING SAFETY NET SALES SALES OF LOANS SAVINGS SECURITIES SMALL BUSINESS SMALL BUSINESS LOANS SUBSIDIARIES TAX VOLATILITY Berger, Allen N. Klapper, Leora F. Turk-Ariss, Rima Bank Competition and Financial Stability |
| relation |
Policy Research Working Paper No. 4696 |
| description |
Under the traditional
"competition-fragility" view, more bank
competition erodes market power, decreases profit margins,
and results in reduced franchise value that encourages bank
risk taking. Under the alternative
"competition-stability" view, more market power in
the loan market may result in greater bank risk as the
higher interest rates charged to loan customers make it more
difficult to repay loans and exacerbate moral hazard and
adverse selection problems. But even if market power in the
loan market results in riskier loan portfolios, the overall
risks of banks need not increase if banks protect their
franchise values by increasing their equity capital or
engaging in other risk-mitigating techniques. The authors
test these theories by regressing measures of loan risk,
bank risk, and bank equity capital on several measures of
market power, as well as indicators of the business
environment, using data for 8,235 banks in 23 developed
nations. The results suggest that - consistent with the
traditional "competition-fragility" view - banks
with a greater degree of market power also have less overall
risk exposure. The data also provide some support for one
element of the "competition-stability" view - that
market power increases loan portfolio risk. The authors show
that this risk may be offset in part by higher equity
capital ratios. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Berger, Allen N. Klapper, Leora F. Turk-Ariss, Rima |
| author_facet |
Berger, Allen N. Klapper, Leora F. Turk-Ariss, Rima |
| author_sort |
Berger, Allen N. |
| title |
Bank Competition and Financial Stability |
| title_short |
Bank Competition and Financial Stability |
| title_full |
Bank Competition and Financial Stability |
| title_fullStr |
Bank Competition and Financial Stability |
| title_full_unstemmed |
Bank Competition and Financial Stability |
| title_sort |
bank competition and financial stability |
| publisher |
World Bank, Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/2008/08/9781899/bank-competition-financial-stability http://hdl.handle.net/10986/6794 |
| _version_ |
1764401099278647296 |