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Bank consolidation and financial stability in Indonesia

Author

Listed:
  • Yusgiantoro, Inka
  • Soedarmono, Wahyoe
  • Tarazi, Amine

Abstract

This paper extends prior literature on the impact of bank market power as a proxy of bank consolidation on financial stability using a single country setting. From a sample of Indonesian commercial banks over the 2010–2015 time span, our empirical results show that higher bank market power is associated with lower insolvency risk and higher capital ratios, suggesting that bank consolidation is beneficial for financial system stability in general. A deeper analysis however reveals that higher market power is detrimental for financial stability in state-owned banks and small private-owned banks. This paper therefore suggests that strengthening market power in large private-owned banks, but encouraging competition in state-owned banks and small private-owned banks to reduce market power, could enhance financial stability.

Suggested Citation

  • Yusgiantoro, Inka & Soedarmono, Wahyoe & Tarazi, Amine, 2019. "Bank consolidation and financial stability in Indonesia," International Economics, Elsevier, vol. 159(C), pages 94-104.
    • Handle: RePEc:eee:inteco:v:159:y:2019:i:c:p:94-104
    DOI: 10.1016/j.inteco.2019.06.002
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    Citations

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    Cited by:

    1. Gamze Ozturk Danisman & Amine Tarazi, 2020. "Financial inclusion and bank stability: evidence from Europe," The European Journal of Finance, Taylor & Francis Journals, vol. 26(18), pages 1842-1855, December.
    2. Soedarmono, Wahyoe & Yusgiantoro, Inka, 2023. "Islamic bank procyclicality in an emerging market economy: Do bank size and financing contracts matter?," The Quarterly Review of Economics and Finance, Elsevier, vol. 92(C), pages 132-141.
    3. Rusmanto, Toto & Soedarmono, Wahyoe & Tarazi, Amine, 2020. "Credit information sharing in the nexus between charter value and systemic risk in Asian banking," Research in International Business and Finance, Elsevier, vol. 53(C).
    4. Wahyoe Soedarmono & Iman Gunadi & Fiskara Indawan & Carla Sheila Wulandari, 2021. "Exploring The Impact Of Loan Restructuring In Indonesian Banking," Working Papers WP/06/2021, Bank Indonesia.
    5. Seyed Alireza Athari, 2022. "Financial Inclusion, Political Risk, and Banking Sector Stability: Evidence from Different Geographical Regions," Economics Bulletin, AccessEcon, vol. 42(1), pages 99-108.
    6. Gupta, Juhi & Kashiramka, Smita, 2024. "Examining the impact of liquidity creation on bank stability in the Asia Pacific region: Do ESG disclosures play a moderating role?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).
    7. Gupta, Juhi & Kashiramka, Smita & Ly, Kim Cuong & Pham, Ha, 2023. "The interrelationship between bank capital and liquidity creation: A non-linear perspective from the Asia-Pacific region," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 793-820.
    8. Soedarmono, Wahyoe & Gunadi, Iman & Pambudi, Sudiro & Nurhayati, Tika, 2023. "Monetary policy, funding liquidity, and undisbursed loans in Indonesia: The bank lending channel revisited," Journal of Economics and Business, Elsevier, vol. 127(C).
    9. Gupta, Juhi & Kashiramka, Smita, 2020. "Financial stability of banks in India: Does liquidity creation matter?," Pacific-Basin Finance Journal, Elsevier, vol. 64(C).

    More about this item

    Keywords

    Consolidation; Market power; Financial stability; Indonesian banking;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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