Are More Competitive Banking Systems More Stable

Abstract

This paper provides the first empirical analysis of the relationship between a direct measure of competitive conduct of financial institutions and banking system fragility on a cross-country level. Using the Panzar and Rosse H-Statistic as a measure for competition in 38 countries during the period 1980 – 2003, we present evidence that more competitive banking systems are less prone to experience a systemic crisis and that time to crisis increases in a competitive environment. Our results hold when concentration and the regulatory and institutional environment are controlled for, and are robust to different methodologies, different sampling periods and alternative samples. JEL Classification: C41; G21; G28; L11

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