Alumni Changing the World

Zuzana Fungáčová: “Does Competition Influence Bank Failures?”

Room 403, 4th floor

Abstract:

There has been a notable debate in the banking literature on the impact of bank competition on financial stability. While the dominant view sees a detrimental impact of competition on the stability of banks, this view has been challenged by Boyd and De Nicolo (2005) who see the reverse effect. The aim of this paper is to contribute to this literature by providing the first empirical investigation of the role of bank competition on the occurrence of bank failures. Our findings clearly support the view that tighter bank competition enhances the occurrence of bank failures. The normative implication of our findings is therefore that measures increasing bank competition could undermine financial stability.