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How Does Bank Competition Affect Systemic Stability
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Book Synopsis How Does Bank Competition Affect Systemic Stability? by : Deniz Anginer
Download or read book How Does Bank Competition Affect Systemic Stability? written by Deniz Anginer and published by . This book was released on 2017 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using bank level measures of competition and co-dependence, the authors show a robust positive relationship between bank competition and systemic stability. Whereas much of the extant literature has focused on the relationship between competition and the absolute level of risk of individual banks, in this paper we examine the correlation in the risk taking behavior of banks, hence systemic risk. The analysis finds that greater competition encourages banks to take on more diversified risks, making the banking system less fragile to shocks. Examining the impact of the institutional and regulatory environment on systemic stability shows that banking systems are more fragile in countries with weak supervision and private monitoring, high government ownership of banks, and in countries with public policies that restrict competition. Furthermore, lack of competition has a greater adverse effect on systemic stability in countries with generous safety nets and weak supervision.
Book Synopsis How Does Bank Competition Affect Systemic Stability? by : Deniz Anginer
Download or read book How Does Bank Competition Affect Systemic Stability? written by Deniz Anginer and published by . This book was released on 2012 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Using bank level measures of competition and co-dependence, the authors show a robust positive relationship between bank competition and systemic stability. Whereas much of the extant literature has focused on the relationship between competition and the absolute level of risk of individual banks, they examine the correlation in the risk taking behavior of banks, hence systemic risk. They find that greater competition encourages banks to take on more diversified risks, making the banking system less fragile to shocks. Examining the impact of the institutional This paper is a product of the Finance and Private Sector Development Team, Development Research Group. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The author may be contacted at [email protected]. and regulatory environment on systemic stability shows that banking systems are more fragile in countries with weak supervision and private monitoring, with generous deposit insurance and greater government ownership of banks, and public policies that restrict competition. Furthermore, lack of competition has a greater adverse effect on systemic stability in countries with low levels of foreign ownership, weak investor protections, generous safety nets, and where the authorities provide limited guidance for bank asset diversification."--- Abstract.
Book Synopsis How Does Bank Competition Affect Solvency, Liquidity and Credit Risk? Evidence from the MENA Countries by : Raja Almarzoqi
Download or read book How Does Bank Competition Affect Solvency, Liquidity and Credit Risk? Evidence from the MENA Countries written by Raja Almarzoqi and published by International Monetary Fund. This book was released on 2015-09-29 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper analyzes the relationship between bank competition and stability, with a specific focus on the Middle East and North Africa. Price competition has a positive effect on bank liquidity, as it induces self-discipline incentives on banks for the choice of bank funding sources and for the holding of liquid assets. On the other hand, price competition may have a potentially negative impact on bank solvency and on the credit quality of the loan portfolio. More competitive banks may be less solvent if the potential increase in the equity base—due to capital adjustments—is not large enough to compensate for the reduction in bank profitability. Also, banks subject to stronger competitive pressures may have a higher rate of nonperforming loans, if the increase in the risk-taking incentives from the lender’s side overcomes the decrease in the credit risk from the borrower’s side. In both cases, country-specific policies for market entry conditions—and for bank regulation and supervision—may significantly affect the sign and the size of the relationship. The paper suggests policy reforms designed to improve market contestability and to increase the quality and independence of prudential supervision.
Book Synopsis Bank Size and Systemic Risk by : Mr.Luc Laeven
Download or read book Bank Size and Systemic Risk written by Mr.Luc Laeven and published by International Monetary Fund. This book was released on 2014-05-08 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: The proposed SDN documents the evolution of bank size and activities over the past 20 years. It discusses whether this evolution can be explained by economies of scale or “too big to fail” subsidies. The paper then presents evidence on the extent to which bank size and market-based activities contribute to systemic risk. The paper concludes with policy messages in the area of capital regulation and activity restrictions to reduce the systemic risk posed by large banks. The analysis of the paper complements earlier Fund work, including SDN 13/04 and the recent GFSR chapter on “too big to fail” subsidies, and its policy message is in line with this earlier work.
Book Synopsis Competition, Liquidity and Stability by : Thi Ngoc My Nguyen
Download or read book Competition, Liquidity and Stability written by Thi Ngoc My Nguyen and published by . This book was released on 2014 with total page 910 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis investigates the impact of market power on bank liquidity; the association between competition and systemic liquidity; and whether the associations between liquidity and stability at both bank- and systemic- levels are affected by competition. The first research question is explored in the context of 101 countries over 1996-2013 while the second and the third, which require listed banks, use a smaller sample of 32 nations during 2001-2013. The Panel Least Squares and the system Generalized Method of Moments estimators are employed to assess these associations. These research issues are further examined separately for countries with different level of economic development. Such divisions are essential since these countries exhibit varying degrees of market power, banking competition, liquidity risk preference, regulations and financial infrastructures.Regarding the market power-liquidity relationship, the findings suggest an inverted U-shaped association between market power and bank liquidity. With an initial increase in market power, banks increase their liquid assets and become net lenders in the interbank markets. When market power exceeds a certain threshold, however, banks hold less liquid assets and become net interbank borrowers. For a given level of market power, ceteris paribus, banks in more developed nations have lower investments in asset liquidity and obtain more funding through the interbank market than those in their developing country counterparts. While competition benefits bank-level asset and funding liquidity, it decreases systemic liquidity. By affecting loan profitability and banks' incentives to hold liquid reserves, competition influences interbank market liquidity and thus asset prices. This in turn influences banks' ability to withstand liquidity shocks and systemic liquidity crises. On the impact of competition on the association between liquidity and stability, bank market power seems to reinforce the positive impact of funding liquidity on bank stability. In contrast, banking systemic liquidity appears only to enhance systemic stability in less competitive markets. This is because greater competition encourages banks to assume more risks (i.e. credit and capital risks) that offset systemic liquidity's positive impact. This thesis offers several contributions to the bank liquidity hoarding and industrial organization literatures by showing that bank liquidity risk varies with market power. It similarly expands the financial intermediation literature by providing evidence that strategic interactions among banks expose them to systemic liquidity crises. It further adds to the competition-stability literature by providing evidence that competition leads to a reversal of the benefits of liquidity on stability at both bank- and systemic- levels. It also improves the prior methodology by deriving a systemic liquidity risk indicator using a Principal Component Analysis, examining both bank- and systemic-levels of liquidity and stability, employing a three year rolling window to reflect more frequent changes of competition over time and using bank distance-to-capital proposed by Chan-Lau and Sy (2007) in addition to the traditional distance-to-default in calculating banking systemic stability. These findings should have implications for policymakers, regulators, central bankers and investors in wide-range of countries. Policy makers should benefit from learning that the new international bank liquidity standards (fully implemented by 2019) incorporate an adjustment to reflect bank market power and competition. Regulators should also avoid "one size fits all" approach as bank liquidity is influenced by cross-country differences in regulation, industry characteristics, financial development and presence/absence of explicit deposit guarantees. Central bankers should learn the impact of competition on liquidity and stability when extending their liquidity support. Finally, investors should be aware their banks' competitive environment and liquidity position before investing.
Book Synopsis Competition Vs. Stability: Oligopolistic Banking System with Run Risk by : Mr. Damien Capelle
Download or read book Competition Vs. Stability: Oligopolistic Banking System with Run Risk written by Mr. Damien Capelle and published by International Monetary Fund. This book was released on 2021-04-23 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a model where large financial intermediaries subject to systemic runs internalize the effect of their leverage on aggregate risk, returns and asset prices. Near the steady-state, they restrict leverage to avoid the risk of a run which gives rise to an accelerator effect. For large adverse shocks, the system enters a zone with high leverage and possibly runs. The length of time the system remains in this zone depends on the degree of concentration through a franchise value, price-drop and recapitalization channels. The speed of entry of new banks after a collapse has a stabilizing effect.
Book Synopsis Competition and Stability in Banking by : Xavier Vives
Download or read book Competition and Stability in Banking written by Xavier Vives and published by Princeton University Press. This book was released on 2020-11-03 with total page 344 pages. Available in PDF, EPUB and Kindle. Book excerpt: A distinguished economist examines competition, regulation, and stability in today's global banks Does too much competition in banking hurt society? What policies can best protect and stabilize banking without stifling it? Institutional responses to such questions have evolved over time, from interventionist regulatory control after the Great Depression to the liberalization policies that started in the United States in the 1970s. The global financial crisis of 2007–2009, which originated from an oversupply of credit, once again raised questions about excessive banking competition and what should be done about it. Competition and Stability in Banking addresses the critical relationships between competition, regulation, and stability, and the implications of coordinating banking regulations with competition policies. Xavier Vives argues that while competition is not responsible for fragility in banking, there are trade-offs between competition and stability. Well-designed regulations would alleviate these trade-offs but not eliminate them, and the specificity of competition in banking should be accounted for. Vives argues that regulation and competition policy should be coordinated, with tighter prudential requirements in more competitive situations, but he also shows that supervisory and competition authorities should stand separate from each other, each pursuing its own objective. Vives reviews the theory and empirics of banking competition, drawing on up-to-date analysis that incorporates the characteristics of modern market-based banking, and he looks at regulation, competition policies, and crisis interventions in Europe and the United States, as well as in emerging economies. Focusing on why banking competition policies are necessary, Competition and Stability in Banking examines regulation's impact on the industry's efficiency and effectiveness.
Book Synopsis Competition and Bank Systemic Risk by : Wataru Hirata
Download or read book Competition and Bank Systemic Risk written by Wataru Hirata and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Bank Competition and Financial Stability by : Mr.Gianni De Nicolo
Download or read book Bank Competition and Financial Stability written by Mr.Gianni De Nicolo and published by International Monetary Fund. This book was released on 2011-12-01 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study versions of a general equilibrium banking model with moral hazard under either constant or increasing returns to scale of the intermediation technology used by banks to screen and/or monitor borrowers. If the intermediation technology exhibits increasing returns to scale, or it is relatively efficient, then perfect competition is optimal and supports the lowest feasible level of bank risk. Conversely, if the intermediation technology exhibits constant returns to scale, or is relatively inefficient, then imperfect competition and intermediate levels of bank risks are optimal. These results are empirically relevant and carry significant implications for financial policy.
Book Synopsis Competition and Bank Risk the Role of Securitization and Bank Capital by : Yener Altunbas
Download or read book Competition and Bank Risk the Role of Securitization and Bank Capital written by Yener Altunbas and published by International Monetary Fund. This book was released on 2019-07-02 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine how bank competition in the run-up to the 2007–2009 crisis affects banks’ systemic risk during the crisis. We then investigate whether this effect is influenced by two key bank characteristics: securitization and bank capital. Using a sample of the largest listed banks from 15 countries, we find that greater market power at the bank level and higher competition at the industry level lead to higher realized systemic risk. The results suggest that the use of securitization exacerbates the effects of market power on the systemic dimension of bank risk, while capitalization partially mitigates its impact.
Book Synopsis A Replication of "Are Competitive Banking Systems More Stable?" (Journal of Money, Credit, and Banking, 2009) by : Samangi Bandaranayake
Download or read book A Replication of "Are Competitive Banking Systems More Stable?" (Journal of Money, Credit, and Banking, 2009) written by Samangi Bandaranayake and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Banking Competition and Stability by : Xavier Freixas
Download or read book Banking Competition and Stability written by Xavier Freixas and published by . This book was released on 2014 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reexamines the classical issue of the possible trade-offs between banking competition and financial stability by highlighting different types of risk and the role of leverage. By means of a simple model we show that competition can affect portfolio risk, insolvency risk, liquidity risk, and systemic risk differently. The effect depends crucially on banks' liability structure, on whether banks are financed by insured retail deposits or by uninsured wholesale debts, and on whether the indebtness is exogenous or endogenous. In particular we suggest that, while in a classical originate-to-hold banking industry competition might increase financial stability, the opposite can be true for an originate-to-distribute banking industry of a larger fraction of market short-term funding. This leads us to revisit the existing empirical literature using a more precise classification of risk. Our theoretical model therefore helps to clarify a number of apparently contradictory empirical results and proposes new ways to analyze the impact of banking competition on financial stability.
Book Synopsis Bank Profitability and Financial Stability by : Ms.TengTeng Xu
Download or read book Bank Profitability and Financial Stability written by Ms.TengTeng Xu and published by International Monetary Fund. This book was released on 2019-01-11 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze how bank profitability impacts financial stability from both theoretical and empirical perspectives. We first develop a theoretical model of the relationship between bank profitability and financial stability by exploring the role of non-interest income and retail-oriented business models. We then conduct panel regression analysis to examine the empirical determinants of bank risks and profitability, and how the level and the source of bank profitability affect risks for 431 publicly traded banks (U.S., advanced Europe, and GSIBs) from 2004 to 2017. Results reveal that profitability is negatively associated with both a bank’s contribution to systemic risk and its idiosyncratic risk, and an over-reliance on non-interest income, wholesale funding and leverage is associated with higher risks. Low competition is associated with low idiosyncratic risk but a high contribution to systemic risk. Lastly, the problem loans ratio and the cost-to-income ratio are found to be key factors that influence bank profitability. The paper’s findings suggest that policy makers should strive to better understand the source of bank profitability, especially where there is an over-reliance on market-based non-interest income, leverage, and wholesale funding.
Book Synopsis Competition and Stability in Banking by : Marcel Canoy
Download or read book Competition and Stability in Banking written by Marcel Canoy and published by . This book was released on 2001 with total page 174 pages. Available in PDF, EPUB and Kindle. Book excerpt: The banking sector in Europe is subject to continuous change. Banks are taking up new types of business in order to diversify their risk; new players such as insurance companies, credit card providers, and non-financial companies enter market segments which used to be the territory of commercial banks; and banks increasingly operate outside their home country or merge with cross-border partners. These developments, triggered by new information technology, disintermediation, deregulation, and the arrival of the Euro, change the landscape in the banking sector and raise a number of policy issues. What are the implications for competition among banks? How can financial stability best be maintained in this changing market? Is there a conflict between increasing competition among banks and stability?
Book Synopsis Competition Policy for Modern Banks by : Mr.Lev Ratnovski
Download or read book Competition Policy for Modern Banks written by Mr.Lev Ratnovski and published by International Monetary Fund. This book was released on 2013-05-23 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditional bank competition policy seeks to balance efficiency with incentives to take risk. The main tools are rules guiding entry/exit and consolidation of banks. This paper seeks to refine this view in light of recent changes to financial services provision. Modern banking is largely market-based and contestable. Consequently, banks in advanced economies today have structurally low charter values and high incentives to take risk. In such an environment, traditional policies that seek to affect the degree of competition by focusing on market structure (i.e. concentration) may have limited effect. We argue that bank competition policy should be reoriented to deal with the too-big-to-fail (TBTF) problem. It should also focus on the permissible scope of activities rather than on market structure of banks. And following a crisis, competition policy should facilitate resolution by temporarily allowing higher concentration and government control of banks.
Book Synopsis Banking Competition and Stability by : Xavier Freixas
Download or read book Banking Competition and Stability written by Xavier Freixas and published by . This book was released on 2019 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reexamines the classical issue of the possible trade-offs between banking competition and financial stability by highlighting different types of risk and the role of leverage. By means of a simple model we show that competition can affect portfolio risk, insolvency risk, liquidity risk, and systemic risk differently. The effect depends crucially on banks' liability structure, on whether banks are financed by insured retail deposits or by uninsured wholesale debts, and on whether the indebtness is exogenous or endogenous. In particular we suggest that, while in a classical originate-to-hold banking industry competition might increase financial stability, the opposite can be true for an originate-to-distribute banking industry of a larger fraction of market short-term funding. This leads us to revisit the existing empirical literature using a more precise classification of risk. Our theoretical model therefore helps to clarify a number of apparently contradictory empirical results and proposes new ways to analyze the impact of banking competition on financial stability.
Book Synopsis Bank Competition and Financial Stability by : OECD
Download or read book Bank Competition and Financial Stability written by OECD and published by OECD Publishing. This book was released on 2011-10-05 with total page 87 pages. Available in PDF, EPUB and Kindle. Book excerpt: This report examines the interplay between banking competition and financial stability, taking into account the experiences in the recent global crisis and the policy response to it. The report has been prepared by members of the Directorate of ...
