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ON THE OPTIMALITY OF BANK COMPETITION POLICY

 

 

 

Ioannis G. Samantas

University of Athens

 

 

This study examines whether the effect of market structure on financial stability is persistent, subject to current regulation and supervision policies. Extreme Bounds Analysis (EBA) is employed over a sample of 2450 banks operating within the EU-27 during the period 2003-2010. The results show an inverse U-shaped association between market power and soundness and a stabilizing tendency in markets of less concentration, where policies lean towards limited restrictions on non-interest income, official intervention in bank management and book transparency. Regulation significantly contributes as a stability channel through which bank competition policy is optimally designed.

 

Keywords: Market power; financial stability; regulation; extreme bound analysis

JEL-Classifications: D21; D4; L11; L51

 

 

Acknowledgements: The research in this paper has been supported by a research grant from the Bank of Greece. The author has also benefited from comments of ICABE (2011) and CEQURA (2011) participants. Valuable advice and suggestions from P. Alexakis, Y. Billias, M. Xanthakis, H. Gibson, H. Louri, A. Koutsomanoli-Fillipaki and H. Balfoussia are gratefully acknowledged. The usual disclaimer applies.

 

 

 

Correspondence:

Ioannis G. Samantas

Department of Economics

University of Athens

1 Sofokleous Street

10559, Athens, Greece.

Tel.: + 30 210-368 9437

E-mail: isamantas@econ.uoa.gr


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