Banking market competition in Europe—financial stability or fragility enhancing?
Considering the importance of the competition-stability trade-off, contradictory theoretical predictions, and empirical evidence, its re-investigation from the angle of non-linearity is needed. Therefore, this paper focuses on the association between bank stability and competition in Europe by emplo...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
AIMS Press
2019-05-01
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| Series: | Quantitative Finance and Economics |
| Subjects: | |
| Online Access: | https://www.aimspress.com/article/10.3934/QFE.2019.2.257/fulltext.html |
| _version_ | 1818683495440973824 |
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| author | Kalle Ahi Laivi Laidroo |
| author_facet | Kalle Ahi Laivi Laidroo |
| author_sort | Kalle Ahi |
| collection | DOAJ |
| description | Considering the importance of the competition-stability trade-off, contradictory theoretical predictions, and empirical evidence, its re-investigation from the angle of non-linearity is needed. Therefore, this paper focuses on the association between bank stability and competition in Europe by employing a Boone indicator and alternative competition measures. Bank stability is measured with the z-score and loan loss reserves ratio. System-GMM estimations are carried out on a panel of banks from 27 European Union member countries over the period of 2004–2014. The results confirm that when a linear association between bank stability and competition is assumed, competition-stability argument prevails. However, when potential non-linearity of this association is assumed, the results appear more diverse and complex across different competition proxies. We observe signs of U-shape association between bank stability and competition for the Boone indicator and weaker signs of an inverse U-shape association with Lerner index. This indicates that before taking policy measures, it is important to consider the potentially non-linear association between bank stability and competition and to define which aspect of competition regulators want to address. The results concerning mature and emerging Europe exhibit also some differences, indicating that suitable regulatory approaches applied even within the EU could be rather different. |
| first_indexed | 2024-12-17T10:35:39Z |
| format | Article |
| id | doaj.art-4c284f2ba9de46f8aa7a18b954422856 |
| institution | Directory Open Access Journal |
| issn | 2573-0134 |
| language | English |
| last_indexed | 2024-12-17T10:35:39Z |
| publishDate | 2019-05-01 |
| publisher | AIMS Press |
| record_format | Article |
| series | Quantitative Finance and Economics |
| spelling | doaj.art-4c284f2ba9de46f8aa7a18b9544228562022-12-21T21:52:24ZengAIMS PressQuantitative Finance and Economics2573-01342019-05-013225728510.3934/QFE.2019.2.257Banking market competition in Europe—financial stability or fragility enhancing?Kalle Ahi0Laivi Laidroo1Department of Economics and Finance, TalTech School of Business and Governance, Tallinn, EstoniaDepartment of Economics and Finance, TalTech School of Business and Governance, Tallinn, EstoniaConsidering the importance of the competition-stability trade-off, contradictory theoretical predictions, and empirical evidence, its re-investigation from the angle of non-linearity is needed. Therefore, this paper focuses on the association between bank stability and competition in Europe by employing a Boone indicator and alternative competition measures. Bank stability is measured with the z-score and loan loss reserves ratio. System-GMM estimations are carried out on a panel of banks from 27 European Union member countries over the period of 2004–2014. The results confirm that when a linear association between bank stability and competition is assumed, competition-stability argument prevails. However, when potential non-linearity of this association is assumed, the results appear more diverse and complex across different competition proxies. We observe signs of U-shape association between bank stability and competition for the Boone indicator and weaker signs of an inverse U-shape association with Lerner index. This indicates that before taking policy measures, it is important to consider the potentially non-linear association between bank stability and competition and to define which aspect of competition regulators want to address. The results concerning mature and emerging Europe exhibit also some differences, indicating that suitable regulatory approaches applied even within the EU could be rather different.https://www.aimspress.com/article/10.3934/QFE.2019.2.257/fulltext.htmlbanks| competition| Boone indicator| bank stability| financial stability |
| spellingShingle | Kalle Ahi Laivi Laidroo Banking market competition in Europe—financial stability or fragility enhancing? Quantitative Finance and Economics banks| competition| Boone indicator| bank stability| financial stability |
| title | Banking market competition in Europe—financial stability or fragility enhancing? |
| title_full | Banking market competition in Europe—financial stability or fragility enhancing? |
| title_fullStr | Banking market competition in Europe—financial stability or fragility enhancing? |
| title_full_unstemmed | Banking market competition in Europe—financial stability or fragility enhancing? |
| title_short | Banking market competition in Europe—financial stability or fragility enhancing? |
| title_sort | banking market competition in europe financial stability or fragility enhancing |
| topic | banks| competition| Boone indicator| bank stability| financial stability |
| url | https://www.aimspress.com/article/10.3934/QFE.2019.2.257/fulltext.html |
| work_keys_str_mv | AT kalleahi bankingmarketcompetitionineuropefinancialstabilityorfragilityenhancing AT laivilaidroo bankingmarketcompetitionineuropefinancialstabilityorfragilityenhancing |