Please use this identifier to cite or link to this item: http://buratest.brunel.ac.uk/handle/2438/10096
Title: EXPLORING THE SHORT- AND LONG-RUN LINKS FROM BANK COMPETITION TO RISK – RECONCILING CONFLICTING HYPOTHESES?
Authors: Davis, EP
karim, D
Keywords: Bank competition;Financial stability;EU banking markets;Lerner index;Panzar-Rosse H Statistic;Z Score
Issue Date: 2013
Publisher: NIESR
Citation: Discussion Paper 421, NIESR, 2013
Abstract: Using a dataset for the EU-27 covering 1998-2012, this is one of the first studies of banking competition and risk to look at the dynamics of the relation between these variables, to take account of a full 6 year period since the onset of the crisis in 2007, as well as a comparable period before it; and to compare and contrast results using two competition indicators, the H statistic and the Lerner index. Using the H statistics, we find that in the crucial pre crisis period, the change in competition has a positive effect on risk (measured by the Z Score), while there is a overall negative effect of the level of competition on risk. The Lerner index provides results supportive of the hypothesis that there are dynamic relations between competition and risk, in that the change in the Lerner index again correlates positively with risk (i.e. narrower margins when competition increases make banks weaker) while the long run effect of heightened competition is also to increase risk. Testing for the reason for differences in long run effects we find that the H and Lerner differ in their impact on the volatility of profits, a key input to the Z Score risk indicator. There are important implications for the interpretation of results in the literature based on these different indicators.
URI: http://bura.brunel.ac.uk/handle/2438/10096
Appears in Collections:Dept of Economics and Finance Research Papers

Files in This Item:
File Description SizeFormat 
Fulltext.pdf493.56 kBAdobe PDFView/Open


Items in BURA are protected by copyright, with all rights reserved, unless otherwise indicated.