<abstract xmlns="http://www.w3.org/1999/xhtml"><bold>Background:</bold> In spite of growing number of empirical studies, especially after the start of financial crisis, literature fails to provide conclusive answers on the relationship between bank competition and stability.<bold>Objective:</bold> We contribute to the existing literature by conducting a bank level analysis of market power implications on CEE bank stability and test weather bank market power increases bank stability.<bold>Approach:</bold> On the sample of 415 CEE banks from 1997-2012, we use Distribution free approach to generate bank specific market power and efficiency indicators and then run a fixed effects panel regression.<bold>Results:</bold> We find evidence supporting the Competition - fragility view; banks with more market power are more stable. Also, we find evidence that this stability is a result of lower portfolio risk supporting the franchise value channel.<bold>Conclusions:</bold> For banks in CEE countries where economic crisis increased risk materialization, increasing competition from the early 2000s, may have been a factor decreasing bank stability which may bear significant implications for upcoming years when competition is likely to increase further.</abstract>

Background: In spite of growing number of empirical studies, especially after the start of financial crisis, literature fails to provide conclusive answers on the relationship between bank competition and stability.Objective: We contribute to the existing literature by conducting a bank level analysis of market power implications on CEE bank stability and test weather bank market power increases bank stability.Approach: On the sample of 415 CEE banks from 1997-2012, we use Distribution free approach to generate bank specific market power and efficiency indicators and then run a fixed effects panel regression.Results: We find evidence supporting the Competition - fragility view; banks with more market power are more stable. Also, we find evidence that this stability is a result of lower portfolio risk supporting the franchise value channel.Conclusions: For banks in CEE countries where economic crisis increased risk materialization, increasing competition from the early 2000s, may have been a factor decreasing bank stability which may bear significant implications for upcoming years when competition is likely to increase further.

Market power and stability of CEE banks

Business Systems Research Journal

This chapter is distributed under the terms of the Creative Commons Attribution 4.0 Public License.

{"article-title":"Market power and stability of CEE banks"}

Background: In spite of growing number of empirical studies, especially after the start of financial crisis, literature fails to provide conclusive answers on...

Market power and stability of CEE banks

Published Online: Oct 20, 2015

Page range: 74 - 90

Received: May 23, 2015

Accepted: Jul 22, 2015

DOI: https://doi.org/10.1515/bsrj-2015-0013

Keywords
bank competition, bank stability, CEE countries

© 2015 Ivan Huljak, published by De Gruyter Open

This chapter is distributed under the terms of the Creative Commons Attribution 4.0 Public License.

Market power and stability of CEE banks

Published Online: Oct 20, 2015

Page range: 74 - 90

Received: May 23, 2015

Accepted: Jul 22, 2015

DOI: https://doi.org/10.1515/bsrj-2015-0013

Keywordsbank competition, bank stability, CEE countries

© 2015 Ivan Huljak, published by De Gruyter Open

This chapter is distributed under the terms of the Creative Commons Attribution 4.0 Public License.

Keywords
bank competition, bank stability, CEE countries