The Competition and Stability Relationship in the European Union Banking Industry: An Empirical Analysis on the Commercial Banks

Abstract

The competition - stability/fragility hypothesis is one of the most frequently discussed topics in the banking literature. Although there are a number of empirical studies examining the relation between competition and stability / fragility in the literature, a common consensus did not put forward in the literature as to whether high competition causes stability or instability. From this point of view, the aim of this study is to analyze the validity of the competition - stability / fragility hypothesis for 26 EU countries. It has been attempted to provide empirical evidence for the validity of the hypothesis by using the data of 156 commercial banks belong to the countries covering the period 2006-2014. The basic tools used in the study; the Lerner and Boone index for measuring competition and the Z-score approach has been used for measuring financial stability. These analytical tools were followed by testing the basic hypothesis with the GMM approach. According to findings in the study, Lerner and Boone indices produce that banks' competitive power shows a decreasing tendency during the period handled. The Z score, which is the indicator of financial stability, is following fluctuation especially in crisis periods. According to GMM estimation results, it is found that there is a positive relation between market power and stability. In this respect, the competition - fragility hypothesis has been verified. Findings show that in a market where monopolistic competition exists, financial stability can be provided by a monopolistic organization and regulation-based policies. The important finding of the study is that the financial system will be more stable in monopolistic competition structure.

Keywords

• Competition
• Lerner index
• Boone index
• Z-score

Avrupa Birliği Bankacılık Endüstrisinde Rekabet ve İstikrar İlişkisi: Ticari Bankalar Üzerine Bir Deneme

Abstract

Rekabet - istikrar/kırılganlık hipotezi, bankacılık literatüründe en sık tartışılan konulardan birisidir. Literatürde rekabet ve istikrar / kırılganlık ilişkisini inceleyen çok sayıda ampirik çalışma olmasına rağmen, yüksek rekabetin, istikrar mı, yoksa istikrarsızlığa mı neden olduğu konusunda literatürde ortak bir görüş ortaya konulmamıştır. Buradan hareketle bu çalışmanın temel amacı, rekabet - istikrar/kırılganlık hipotezinin geçerliliğini ele alınan 26 Avrupa Birliği (AB) ülkesi için analiz etmektir. Söz konusu ülkelere ait 156 ticari bankanın 2006-2014 dönemini kapsayan verileri kullanılarak hipotezin geçerliliğine yönelik bir ampirik kanıt ortaya konmaya çalışılmıştır. Çalışmada kullanılan temel analiz araçları; rekabet gücünün ölçümü için Lerner ve Boone indeksi, finansal istikrarın ölçülmesine yönelik teknik olarak Z-skoru yaklaşımı kullanılmıştır. Bu analiz araçlarını GMM yaklaşımı ile temel hipotezin test edilmesi izlemiştir. Çalışmada elde edilen bulgulara göre Lerner ve Boone indeksleri, bankaların rekabet gücünün ele alınan dönem boyunca azalan bir eğilim gösterdiğini ortaya koymaktadır. Finansal istikrarın göstergesi olan Z-skoru ise kriz dönemleri başta olmak üzere dalgalı bir seyir izlemektedir. GMM tahmin sonuçlarına göre ise piyasa gücü ile istikrar arasında pozitif bir ilişkinin olduğu bulgusuna ulaşılmıştır. Bu açıdan değerlendirildiğinde rekabet – kırılganlık hipotezi doğrulanmıştır. Bulgular tekelci rekabetin olduğu bir piyasada regülasyona dayalı politikalar ve tekelci bir yapılanma ile istikrarının sağlanabileceği yönündedir. Çalışmanın önemli bulgusu finansal sistemin tekelci rekabet yapısında daha istikrarlı olacağı yönündedir.

Keywords

• Rekabet
• Lerner İndeksi
• Boone İndeksi
• Z skoru

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