Bank Concentration and Fragility: Impact and Mechanics

Thorsten Beck, Asli Demirguc-Kunt and Ross Levine ()

No 11500, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Public policy debates and theoretical disputes motivate this paper's examination of (i) the relationship between bank concentration and banking system fragility and (ii) the mechanisms underlying this relationship. We find no support for the view that concentration increases the fragility of banks. Rather, banking system concentration is associated with a lower probability that the country suffers a systemic banking crisis. In terms of policies, we find that (i) regulations and institutions that facilitate competition in banking are associated with less—not more—banking system fragility and (ii) including these policy indicators does not change the results on concentration. This suggests that concentration is a proxy for something else besides the competitive environment. Also, we do not find that official capital regulations, reserve requirements, or official prudential regulations lower crises probabilities. Finally, we present suggestive evidence that concentrated banking systems tend to have larger, better-diversified banks, which may help account for the positive link between concentration and stability.

JEL-codes: G21 G28 L16 (search for similar items in EconPapers)
Date: 2005-08
New Economics Papers: this item is included in nep-bec, nep-com, nep-fin and nep-fmk
Note: CF IFM
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Citations: View citations in EconPapers (17)

Published as Carey, Mark and Rene Stulz (eds.) The Risk of Financial Institutions. Chicago: University of Chicago Press, 2006.
Published as Bank Concentration and Fragility. Impact and Mechanics , Thorsten Beck. in The Risks of Financial Institutions , Carey and Stulz. 2006

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