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Banking concentration and financial stability: Evidence from developed and developing countries

Author

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  • Ben Ali, Mohamed Sami
  • Intissar, Timoumi
  • Zeitun, Rami

Abstract

In this paper, the authors analyze the relationship between banking concentration and financial stability for a sample of 173 developed and developing countries over the period 1980-2011. First, they empirically examined the direct effect of banking concentration on financial stability by using a panel logit model. Second, the authors investigated the indirect effect through which concentration may affect stability. Their findings provide support for the existence of both concentration-stability and concentration-fragility channels. However, the authors report the absence of any direct effect of banking concentration on the occurrence of financial stability in our sample. When considering heterogeneity across countries, their results help confirm the stabilizing effect of concentration on financial stability for developing countries. However, the concentration-fragility hypothesis does not hold for these countries. They also confirm the existence of both effects regarding concentration: the stabilizing and destabilizing effect of concentration on financial stability.

Suggested Citation

  • Ben Ali, Mohamed Sami & Intissar, Timoumi & Zeitun, Rami, 2015. "Banking concentration and financial stability: Evidence from developed and developing countries," Economics Discussion Papers 2015-22, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwedp:201522
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    Citations

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    Cited by:

    1. Baah Aye Kusi & Lydia Adzobu & Alex Kwame Abasi & Kwadjo Ansah-Adu, 2020. "Sectoral Loan Portfolio Concentration and Bank Stability: Evidence from an Emerging Economy," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 19(1), pages 66-99, April.
    2. Wojcicka Karolina, 2016. "The Relationship Between Concentration of the Banking Sector in Poland and Its Soundness," Financial Internet Quarterly (formerly e-Finanse), Sciendo, vol. 12(4), pages 43-57, December.
    3. Faris Alshubiri, 2022. "The financial competition, concentration and structure of financial performance nexus in the financial sector of Oman," Economic Change and Restructuring, Springer, vol. 55(2), pages 681-714, May.
    4. Cláudio Oliveira de Moraes & José Américo Pereira Antunes & Márcio Silva Coutinho, 2020. "What is the Importance of a Country's Banking Market for Financial Development?," Working Papers Series 535, Central Bank of Brazil, Research Department.

    More about this item

    Keywords

    Banking structure; Financial stability; Panel logit; GMM model;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • P44 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - National Income, Product, and Expenditure; Money; Inflation

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