Thursday, September 15, 2011
Posted by D. Daniel Sokol
Thorsten Beck (Tilburg University), Olivier De Jonghe (Tilburg University), and Glenn Schepens (Ghent University) have an interesting paper on Bank Competition and Stability: Cross-country Heterogeneity.
ABSTRACT: This paper documents a large cross-country variation in the relationship between bank competition and stability and explores market, regulatory and institutional features that can explain this heterogeneity. Combining insights from the competition-stability and regulation-stability literatures, we develop a unified framework to assess how regulation, supervision and other institutional factors may make it more likely that the data favor the charter-value paradigm or the risk-shifting paradigm. We show that an increase in competition will have a larger impact on banks' risk taking incentives in countries with stricter activity restrictions, more homogenous market structures, more generous deposit insurance and more effective systems of credit information sharing.