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BANKING CONCENTRATION AND FINANCIAL CRISES

Published online by Cambridge University Press:  03 November 2020

Ray Barrell  and
Dilruba Karim
Ray Barrell*
Affiliation:
Brunel University, London. E-mail: Ray.Barrell@brunel.ac.uk.
Dilruba Karim*
Affiliation:
Senior Lecturer, Brunel UniversityLondon. E-mail: Dilruba.Karim@brunel.ac.uk.
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Abstract

Policymakers 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.

Keywords

financial stabilitybank competitionbanking crisesmacroprudential policyE44G01G18
Type
Research Article
Information
National Institute Economic Review , Volume 254 , November 2020 , pp. R28 - R40
Copyright
© National Institute of Economic and Social Research, 2020

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Footnotes

We would like to thank Corrado Macchiarelli for his comments and our colleagues and co-authors at NIESR, Phil Davis and Iana Liadze for many useful discussions of the issues covered in this paper over the past decade. Much of the material has been presented at international conferences, including EUROFRAME in Dublin, and we would like to thank Yvonne McCarthy, Robert Unger, Elisabeth Casabianca, Kieran McQuinn, John FitzGerald and other participants for their comments. All errors are ours.

References

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