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Market power and stability of CEE banks

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  • Huljak Ivan

    (Croatian National Bank, Croatia)

Abstract

Background: In spite of growing number of empirical studies, especially after the start of financial crisis, literature fails to provide conclusive answers on the relationship between bank competition and stability.Objective: We contribute to the existing literature by conducting a bank level analysis of market power implications on CEE bank stability and test weather bank market power increases bank stability.Approach: On the sample of 415 CEE banks from 1997-2012, we use Distribution free approach to generate bank specific market power and efficiency indicators and then run a fixed effects panel regression.Results: We find evidence supporting the Competition - fragility view; banks with more market power are more stable. Also, we find evidence that this stability is a result of lower portfolio risk supporting the franchise value channel.Conclusions: For banks in CEE countries where economic crisis increased risk materialization, increasing competition from the early 2000s, may have been a factor decreasing bank stability which may bear significant implications for upcoming years when competition is likely to increase further.

Suggested Citation

  • Huljak Ivan, 2015. "Market power and stability of CEE banks," Business Systems Research, Sciendo, vol. 6(2), pages 74-90, September.
    • Handle: RePEc:bit:bsrysr:v:6:y:2015:i:2:p:74-90
    DOI: 10.1515/bsrj-2015-0013
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    Cited by:

    1. Vodová,Pavla Klepková & PaleÄ ková,Iveta & Stavárek,Daniel, 2023. "Banking Stability and Financial Conglomerates in European Emerging Countries," Cambridge Books, Cambridge University Press, number 9781009095112, September.
    2. Samangi Bandaranayake & Kuntal K. Das & Robert W. Reed, 2020. "Another Look At ‘Bank Competition And Financial Stability: Much Ado About Nothing’?," Journal of Economic Surveys, Wiley Blackwell, vol. 34(2), pages 344-371, April.
    3. van Leuvensteijn, Michiel & Huljak, Ivan & de Bondt, Gabe, 2024. "A new measure of firm-level competition: an application to euro area banks," Working Paper Series 2925, European Central Bank.
    4. Rachita Gulati & M. Kabir Hassan & Vincent Charles, 2024. "Developing a New Multidimensional Index of Bank Stability and Its Usage in the Design of Optimal Policy Interventions," Computational Economics, Springer;Society for Computational Economics, vol. 63(4), pages 1281-1325, April.
    5. Samangi Bandaranayake & Kuntal K. Das & W. Robert Reed, 2018. "A Replication of “Bank Competition and Financial Stability: Much Ado About Nothing?” (Journal of Economic Surveys, 2016)," Working Papers in Economics 18/18, University of Canterbury, Department of Economics and Finance.
    6. Gulati, Rachita & Singh, Nirmal & Kumar, Sunil & Duppati, Geeta, 2023. "Bank stability in the Indian subcontinent region: Evolution and determinants," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    bank competition; bank stability; CEE countries;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance

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