Competition, Efficiency, and Stability in Banking

Schaeck, K. and Cihák, M. (2014) Competition, Efficiency, and Stability in Banking. Financial Management, 43 ((1)). pp. 215-241. DOI: 10.1111/fima.12010

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We examine the effect of competition on banking stability using a new measure of competition based on the reallocation of profits from inefficient banks to efficient ones. In a sample of European Banks, we find that this measure does capture competition, that competition is stability-enhancing, and that the stability-enhancing effect of competition is greater for healthy banks than for fragile ones. Our results suggest that efficiency is the conduit through which competition contributes to stability and that regulators must condition policy on the health of existing banks.

Item Type: Article
Subjects: Research Publications
Departments: College of Business, Law, Education and Social Sciences > Bangor Business School
Date Deposited: 09 Dec 2014 16:35
Last Modified: 23 Sep 2015 03:01
ISSN: 1755-053X
URI: http://e.bangor.ac.uk/id/eprint/517
Identification Number: DOI: 10.1111/fima.12010
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