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Banking Concentration and Financial Crises

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  • Ray Barrell
  • Dilruba Karim

Abstract

Policy makers need to know if the structure of competition and the degree of banking market concentration change the incidence of financial crises. Previous studies have not always come to clear conclusions. We use a new dataset of 19 countries where we include capital adequacy and house price growth as factors affecting crisis incidence, and we find a positive role for bank concentration in reducing incidence. In addition, we look at New Industrial Economics indicators of market structure and find that increased market power also reduces crisis incidence. We conclude that attempts to increase competition in banking, although welcome for welfare reasons, should be accompanied by increases in capital standards.

Suggested Citation

  • Ray Barrell & Dilruba Karim, 2020. "Banking Concentration and Financial Crises," National Institute of Economic and Social Research (NIESR) Discussion Papers 516, National Institute of Economic and Social Research.
    • Handle: RePEc:nsr:niesrd:516
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 215-268, November.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    3. Allen, Franklin & Gale, Douglas, 2004. "Competition and Financial Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 453-480, June.
    4. Anginer, Deniz & Demirguc-Kunt, Asli & Zhu, Min, 2014. "How does competition affect bank systemic risk?," Journal of Financial Intermediation, Elsevier, vol. 23(1), pages 1-26.
    5. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank concentration, competition, and crises: First results," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1581-1603, May.
    6. Jan Boone, 2008. "A New Way to Measure Competition," Economic Journal, Royal Economic Society, vol. 118(531), pages 1245-1261, August.
    7. Barrell, Ray & Davis, E. Philip & Karim, Dilruba & Liadze, Iana, 2010. "Bank regulation, property prices and early warning systems for banking crises in OECD countries," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2255-2264, September.
    8. Demirguc-Kunt, Asli & Peria, Maria Soledad Martinez, 2010. "A framework for analyzing competition in the banking sector : an application to the case of Jordan," Policy Research Working Paper Series 5499, The World Bank.
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    Cited by:

    1. Baah Kusi & Elikplimi Agbloyor & Agyapomaa Gyeke‐Dako & Simplice Asongu, 2022. "Financial sector transparency, financial crises and market power: A cross‐country evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4431-4450, October.
    2. Ana Kristel Lapid & Rogelio Mercado & Peter Rosenkranz, 2023. "Concentration in Asia's cross‐border banking: Determinants and impacts," Pacific Economic Review, Wiley Blackwell, vol. 28(2), pages 267-292, May.
    3. Bitros, George C., 2021. "Destabilizing asymmetries in central banking: With some enlightenment from money in classical Athens," The Journal of Economic Asymmetries, Elsevier, vol. 23(C).
    4. Daniel Ofori-Sasu & Emmanuel Sarpong-Kumankoma & Saint Kuttu & Elikplimi Komla Agbloyor & Joshua Yindenaba Abor, 2024. "Risk-taking and systemic banking crisis in Africa: do regulatory policy framework provide new insight in threshold models?," Risk Management, Palgrave Macmillan, vol. 26(2), pages 1-37, May.

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    More about this item

    Keywords

    Financial Stability; Bank Competition; Banking Crises; Macroprudential Policy;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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