Erschienen in:European Banking Center Discussion Paper ; No. 2010-20S
Umfang:
1 Online-Ressource (44 p)
Sprache:
Englisch
DOI:
10.2139/ssrn.1635245
Identifikator:
Entstehung:
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments July 6, 2010 erstellt
Beschreibung:
How can competition enhance bank soundness? Does competition improve soundness via the efficiency channel? Do banks heterogeneously respond to competition? To answer these questions, we exploit an innovative measure of competition [Boone, J., A New Way to Measure Competition, EconJnl, Vol. 118, pp. 1245-1261] that captures the reallocation of profits from inefficient banks to their efficient counterparts. Based on two complementary datasets for Europe and the U.S., we first establish that the new competition indicator captures a broad variety of other characteristics of competition in a consistent manner. Second, we verify that competition increases efficiency. Third, we present novel evidence that efficiency is the conduit through which competition contributes to bank soundness. In a final examination of banks' heterogeneous responses to competition, we find that smaller banks' soundness measures respond more strongly to competition than larger banks' soundness measures, and two-stage quantile regressions indicate that the soundness-enhancing effect of competition is larger in magnitude for sound banks than for fragile banks