LINKING BANK COMPETITION, FINANCIAL STABILITY, AND ECONOMIC GROWTH

This paper investigates the effect of bank competition and financial stability on economic growth by examining panel-data from 38 European countries over 2001 to 2017. Bank competition is measured with the Boone indicator, and bank stability with Z-scores and non-performing loan ratios, all at the country level. This study employs a fixed-effect estimator, as well as a system generalized method of moment (GMM) estimator to control unobserved heterogeneity, endogeneity, the dynamic effect of economic growth, and reverse causality in its estimation. Results show that bank stability significantly contributes to economic growth in Europe. Economic growth falls during crisis periods (both the global financial crisis and the local banking crisis), highlighting the importance of a resilient banking system during crisis periods. Moreover, empirical outcomes show that lower banking competition supports economic growth and increases financial stability. This study provides a framework for banks and regulators to boost economic growth through the channel of banking stability.

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Does bank competition promote economic growth? Empirical evidence from selected South Asian countries

South Asian Journal of Business Studies ◽

10.1108/sajbs-07-2018-0079 ◽

2019 ◽

Vol 8 (2) ◽

pp. 201-223 ◽

Cited By ~ 4

Author(s):

Bijoy Rakshit ◽

Samaresh Bardhan

Keyword(s):

Economic Growth ◽

South Asian ◽

Financial Stability ◽

Joint Effect ◽

Bank Competition ◽

Banking Competition ◽

Content Type ◽

Lerner Index ◽

Asian Economies ◽

Banking Stability

Purpose Bank competition and financial stability are often cited as important drivers of economic growth. Bank competition plays a very significant role in enhancing the efficiency and determining the stability of a financial system. However, a question of interest is whether bank competition enhances or hindrances the economic growth of a country. The purpose of this paper is to investigate the role of bank competition and financial stability on economic growth for selected South Asian economies over the period 1997–2016. Design/methodology/approach To investigate whether bank competition enhances or hinders economic growth, the author applies a two-step estimation technique. First, the author estimates bank competition using the Lerner index and adjusted Lerner index and, second, examines the joint effect of bank competition and financial stability on economic growth applying both panel regression model and system GMM techniques. Findings Empirical findings reveal that the banking sector in South Asian economies is competitive as indicated by the estimated values of Lerner and adjusted Lerner index. Moreover, the joint effect defined by the interaction between banking competition and banking stability also reveals a positive and significant impact on economic growth. This finding implies that both banking competition and banking stability are significant long-term determinants of economic growth in South Asian economies. Practical implications This paper suggests flexible banking regulation policies such as low net interest rate margins, lesser activity restrictions and entry of foreign banks along with few contestability measures to increase bank competition in South Asian countries. This is because as higher the competition, greater is the chance for efficient allocation of resources and hence economic growth. Originality/value This paper is the first of its kind that considers the joint role of bank competition and financial stability on economic growth. The application of a semi-parametric approach in the estimation of marginal cost is also a unique contribution to empirical literature.

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Quality of financial reporting under IFRS and corporate governance influence: Evidence from the Greek banking sector during crisis

Journal of Governance and Regulation ◽

10.22495/jgrv8i4art1 ◽

2019 ◽

Vol 8 (4) ◽

pp. 8-20

Author(s):

Panagiotis Ballas ◽

Alexandros Garefalakis ◽

Christos Lemonakis ◽

Vassiliki Balla

Keyword(s):

Economic Growth ◽

Corporate Governance ◽

Financial Reporting ◽

Financial Stability ◽

Global Financial Crisis ◽

Debt Crisis ◽

Financial System ◽

Positive Contribution ◽

Governance Practices

The financial system consists, without doubt, one of the most important determinants of the world national economies, which undergoes numerous changes and challenges with major impact on the economic growth prospects of a country. A healthy financial system is the steam engine of the economy, a major source for economic growth through which capitals are attracted for investments; hence, it is regarded as a trustee of financial stability. Given the difference in structure and function of the financial sector in various countries, we investigate the extent to which the implementation of International Financial Reporting Standards (IFRS) accompanied by Corporate Governance practices affected the quality of financial and narrative reporting offered within published statements of Greek banks for the period from 2008 to 2011. The originality of the work lies at the fact that it focuses on Greek financial institutions for a period that incorporates both the burst of global financial crisis and the beginning of the Greek sovereign debt crisis making inferences on quality of reporting as a result of IFRS and Corporate Governance practices adoption. Our analysis revealed the positive contribution of both of the above categories of variables to the accuracy and quality of the information offered to stakeholders.

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Risk Behavior, Country Governance, and Bank Stability in Pakistan

Recent Applications of Financial Risk Modelling and Portfolio Management - Advances in Finance, Accounting, and Economics ◽

10.4018/978-1-7998-5083-0.ch009 ◽

2021 ◽

pp. 185-203

Author(s):

Hafiz Waqas Kamran ◽

Abdelnaser Omran

Keyword(s):

Economic Growth ◽

Credit Risk ◽

Risk Behavior ◽

Commercial Banks ◽

Financial Stability ◽

Operational Risk ◽

Bank Stability ◽

Regression Methods ◽

The Stability ◽

Control Of Corruption

Keeping risk behavior and country governance in observation, this study has investigated the trends in financial stability for a sample of 22 commercial banks in Pakistan while controlling the effect of economic growth. Over the period of 2007 to 2016, the authors have applied OLS, FE, and RE regression methods to investigate which risk and governance factors are influencing the stability measures of the banks. It is found that financial stability in overall banks is affected by credit risk, operational risk, country risk, and financial crisis risk while control of corruption is also affecting ZROA in an adverse way.

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Bank Competition and Financial Stability: Evidence from the Financial Crisis

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109016000090 ◽

2016 ◽

Vol 51 (1) ◽

pp. 1-28 ◽

Cited By ~ 47

Author(s):

Brian Akins ◽

Lynn Li ◽

Jeffrey Ng ◽

Tjomme O. Rusticus

Keyword(s):

Financial Crisis ◽

Financial Stability ◽

Housing Prices ◽

State Level ◽

Real Estate Market ◽

Bank Competition ◽

Banking Competition ◽

The Real Estate ◽

The Real Estate Market ◽

Recent Financial Crisis

AbstractWe examine the link between bank competition and financial stability using the recent financial crisis as the setting. We utilize variation in banking competition at the state level and find that banks facing less competition are more likely to engage in risky activities, more likely to face regulatory intervention, and more likely to fail. Focusing on the real estate market, we find that states with less competition had higher rates of mortgage approval, experienced greater inflation in housing prices before the crisis, and experienced a steeper decline in housing prices during the crisis. Overall, our study is consistent with greater competition increasing financial stability.

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The impact of monetary policy and bank competition on banking industry risk: A default analysis

Banks and Bank Systems ◽

10.21511/bbs.16(1).2021.18 ◽

2021 ◽

Vol 16 (1) ◽

pp. 205-215

Author(s):

Sri Ayomi ◽

Eleonora Sofilda ◽

Muhammad Zilal Hamzah ◽

Ari Mulianta Ginting

Keyword(s):

Monetary Policy ◽

Financial Stability ◽

Banking Industry ◽

Negative Impact ◽

Generalized Method Of Moments ◽

Dynamic Panel Data ◽

Probability Of Default ◽

Bank Competition ◽

Banking Competition ◽

The Impact

In the financial system and economy, the banking industry plays a crucial role. Default risk takes central stage in preserving financial stability and needs to be mitigated as it can trigger a crisis. The study examines the combined effects of monetary policy and bank competition on banking defaults. Using a sample of 95 commercial banks in Indonesia between 2009 and 2019, this study employs the Generalized Method of Moments, a two-step dynamic panel-data estimation system, to analyze it. Empirical estimation results show that monetary policy, through an increase in the benchmark interest rate, negatively affects probability of default. The extent of banking stability is also enhanced by monetary policy. Banking competition has a negative and significant effect on probability of default and has a positive effect on the banking distance to default. Furthermore, the combined impact of monetary policy and banking competition positively affects probability of default but has a negative impact on the distance of default. Building on this study, to promote a stable and more efficient banking system, policymakers should develop policies that foster complementary monetary and competition policies.

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Effect of Bank Competition on Financial Stability: Empirical Evidence from Nepal

Economic Literature ◽

10.3126/el.v13i0.19147 ◽

2018 ◽

Vol 13 ◽

pp. 19

Author(s):

Surya Bahadur G.C. ◽

Gyaneswar Sharma

Keyword(s):

Financial Stability ◽

Fixed Effects ◽

Banking Sector ◽

Banking System ◽

System Stability ◽

Annual Data ◽

Bank Competition ◽

Financial Industry ◽

Banking Competition ◽

The Impact

There are two hypotheses about the relationship between competition and financial stability in the banking system: “competition-fragility” view argues that competition makes banks more likely totake excessive risks, thereby leading to fragility, while “competition-stability” view suggests that higherinterest rates in less competitive environments may cause borrowers to take higher risks,resulting in higher probability of non-performing loans and a more fragile system. This paper empirically examines the impact of competition on Nepalese banking system employing annual data of commercial banks from 1999 to 2012 period using fixed effects panel data model. The study period represents the era of rapid growth in financial institutions in Nepal. The HHI and n-bank concentration ratios are used as measure of competition while Z-index and nonperforming loans ratioare used as proxies of financial stability. The effects of macroeconomic factors and bank specific indicators are also taken into account. The results reveal that there is apositive relationship between greater banking competition and financial stability in Nepal, supporting the “competition-stability” view. Competition in banking sector is found to result in decrease in credit risk and contribute for financial stability. Mixed results have been achieved incase of the impact of bank competition on overall stability. The findings indicate that both higher concentration and higher competition are detrimental for stability. Hence, policymakers should facilitate further consolidation in the financial industry, however, it should be ensured that excessive consolidation doesn’t result in an environment that hinders competition. In addition,besides competition level in the banking system, macroeconomic situation of the country is found to be an important determinant of banking system stability. Economic Literature, Vol. XIII August 2016, page 19-31

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The Impact of Banking Competition on Economic Growth and Financial Stability: An Empirical Investigation

European Journal of Sustainable Development ◽

10.14207/ejsd.2021.v10n1p203 ◽

2021 ◽

Vol 10 (1) ◽

pp. 203

Author(s):

George Abuselidze

Keyword(s):

Economic Growth ◽

Monetary Policy ◽

Central Bank ◽

Financial Stability ◽

Empirical Investigation ◽

Banking System ◽

Economic Sector ◽

Banking Competition ◽

Banking Market ◽

The Impact

The paper examines the level of competition in banking market using different econometric models and analyzes the impact of efficiency of the banking system on the economic growth of the country. The research discusses to ensure banking competition as a function of the Central Bank. Also, the paper includes some recommendations developed to improve banking competition. Our hypothesis is that the existence of high levels of banking competition and low concentration in the banking market balances the speed of money supply in the economic sector. As a result, the Central Bank's monetary policy will be more effective in achieving its core objectives. Therefore, banking competition contributes to the economic growth of the country. In addition, the monetary policy of the Central Bank concentrates on financial stability, which is one of the fundamental factors in the economic development of a country.

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Financial Inclusion and Bank Stability of Commercial Banks Listed in Nairobi Securities Exchange, Kenya

International Journal of Current Aspects in Finance, Banking and Accounting ◽

10.35942/ijcfa.v2i1.113 ◽

2020 ◽

Vol 2 (1) ◽

pp. 64-81

Author(s):

Daisy Wairimu Kinyua ◽

Job Omagwa

Keyword(s):

Service Delivery ◽

Central Bank ◽

Customer Service ◽

Financial Institutions ◽

Commercial Banks ◽

Financial Stability ◽

Global Financial Crisis ◽

Financial Inclusion ◽

Capital Adequacy ◽

Bank Stability

Following the global financial crisis of 2007-2009, policy makers, regulators and financial institutions have heavily invested in initiatives and reforms aimed at improving the financial stability of the banking sector. However, despite these initiatives, many of the listed commercial banks in the recent past have continued to report dismal performance. Additionally, the stability levels of the banks remain low despite implementation of financial inclusion policies which raises concern. The study sought to determine the effect of financial inclusion on bank stability of Commercial banks listed in Nairobi Securities Exchange, Kenya. The specific objectives were to establish the effect of financial availability, financial accessibility, financial usage, and service delivery on bank stability. The study employed a descriptive research design and targeted 11 commercial banks listed in Nairobi Securities Exchange, Kenya. The period scope was year 2014 to year 2018 and purposive sampling was applied in picking a sample of 55 respondents. Primary data was collected using questionnaires while secondary data was gathered utilizing a document review guide. Multiple regression analysis, correlation analysis, and descriptive statistics were applied in the data analysis. The study found that financial availability (p=0.033), financial accessibility (p=0.015), financial usage (p=0.039) and service delivery (p=0.023) all had significant effects on bank stability of commercial banks listed in Nairobi Securities Exchange, Kenya. The study concludes that financial availability, financial accessibility, financial usage, and service delivery play a crucial role in fostering stability of listed commercial banks in Kenya. The study recommends that central bank should ensure compliance on Central Bank of Kenya policies that govern capital adequacy to avert risks associated with Non-Performing Loans. Commercial banks listed in Nairobi Securities Exchange are recommended to embrace latest technologies in service provision. In addition, financial institutions need to invest in customer service by first providing employees with the right skills and technology to provide exceptional customer service. Further, banks are recommended to put in place strong lending policies as well as debt recovery measures which will improve their stability levels.

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Unsustainable Household Debt: Problems of Measurement

Vierteljahrshefte zur Wirtschaftsforschung ◽

10.3790/vjh.89.1.101 ◽

2020 ◽

Vol 89 (1) ◽

pp. 101-114

Author(s):

Damon Gibbons

Keyword(s):

Economic Growth ◽

Financial Stability ◽

Global Financial Crisis ◽

Research Effort ◽

Aggregate Data ◽

Household Debt ◽

Debt Overhang ◽

Significant Research ◽

The Global Financial Crisis ◽

The Uk

Summary: In the wake of the Global Financial Crisis, a significant research effort has been made to better understand the links between household debt levels, financial stability risks, and the ongoing implications of the ‘debt overhang’ for economic growth. However, accurately measuring the household debt burden remains problematic. Aggregate measures of household indebtedness (e. g. household liabilities relative to income) fail to fully capture the debt servicing burdens of households, particularly in periods when real incomes are declining (as has been the case in the UK in recent years). They also provide no insight into the distribution of debt burdens, which may be important for both future financial stability and economic growth. We attempt to address this problem by combining a new analysis of aggregate data with insights gleaned from household debt surveys. We first construct a new measure of debt interest payments as a percentage of the overall household surplus from the aggregate data. This indicates a significant increase in household debt burdens between 2016 and 2018. We test the validity of this measure by analysing household debt surveys over the period, and report on the most affected households. The findings support a case for a lowering of the thresholds used in official measures of financial vulnerability and over-indebtedness and for greater impetus in policymaking to relieve the financial pressures of households in debt.

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Financial prudential behavior and economic growth

Contaduría y Administración ◽

10.22201/fca.24488410e.2021.2674 ◽

2020 ◽

Vol 66 (3) ◽

pp. 265

Author(s):

Salvador Rivas Aceves ◽

Griselda Dávila Aragón

Keyword(s):

Economic Growth ◽

Financial Crisis ◽

Financial Markets ◽

Financial Stability ◽

Capital Accumulation ◽

Global Financial Crisis ◽

Real Economy ◽

Growth Promoters ◽

2008 Financial Crisis ◽

The 2008 Financial Crisis

The 2008 global financial crisis showed not only that there is a link between real economy and financial markets, but also that financial stability is necessary for investment, innovation and of course economic growth. Regarding the link between real and financial sectors, several studies long before the 2008 financial crisis revealed positive impacts from financial sector on real economy, basically because a solid financial system promote physic and human capital accumulation, see Banerjee and Newman (1993) Galor and Zeira (1993), Aghion and Bolton (1997), Piketty (1997), Levine (1997), Levine and Zervos (1998), Rajan and Zingales (1998). When considering well-developed financial markets as economic growth promoters the researches of Levine (2005), Aghion et al. (2005) and Acemoglu et al. (2006) proved that financial develop indeed accelerates economic growth.

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