You are here

Home » Content

Bank Stability and Competition: Evidence from Albanian Banking Market

Journal Name:

  • Eurasian Journal of Business and Economics

Publication Year:

  • 2017
DOI: 
https://doi.org/10.17015/ejbe.2017.019.07

Key Words:

Author Name
Abstract (2. Language): 
This paper analyses the inter-temporal competition – stability nexus after the global financial crises. For this reason, the empirical estimation approach follows a five – step procedure. First, we utilise quarterly macroeconomic and balance sheet and income statement data for 16 banks operating in the Albanian banking sector over the period 2008 – 2015. Second, we calculate a new composite index as a measure of bank stability conditions, which includes a wide set of information rather than focusing only on one aspect of risk. Then, we construct a proxy for bank competition such as the Boone indicator. Empirical estimations are based on the General Method of Moments approach. A set of robustness checks include also the use of other alternative proxy of competition such as the Lerner index and the efficient-adjusted Lerner index, profit elasticity and the Herfindahl index. Empirical results strongly support the “competition – stability” view after the global financial crises - that higher degree of competition boosts further bank stability conditions. Results further indicate that greater concentration has also a negative impact on bank stability. Results imply also that bank stability is positively linked with macroeconomic conditions and capital ratio and inverse with operational efficiency. Finally, we do not find a non-linear relationship between competition and stability.
Bookmark/Search this post with
FULL TEXT (PDF): 
PDF icon arastirmax-bank-stability-and-competition-evidence-albanian-banking-market.pdf
  • 19
127
154
  • English

JEL Codes:

REFERENCES

References: 

Agoraki, M. E. K., Delis, M. D., & Pasiouras, F. (2011). Regulations, competition and bank risktaking
in transition countries. Journal of Financial Stability, 7(1), 38-48.
https://doi.org/10.1016/j.jfs.2009.08.002
Ahamed, M. M., & Mallick, S. (2017). Does regulatory forbearance matter for bank stability?
Evidence from creditors’ perspective. Journal of Financial Stability, 28, 163-180.
https://doi.org/10.1016/j.jfs.2017.01.001
Allen, F., & Gale, D. (2004). Competition and financial stability. Journal of Money, Credit, and
Banking, 36(3), 453-480. https://doi.org/10.1353/mcb.2004.0038
Amidu, M., & Wolfe, S. (2013). Does bank competition and diversification lead to greater
stability? Evidence from emerging markets. Review of Development Finance, 3(3), 152-166.
https://doi.org/10.1016/j.rdf.2013.08.002
Amidu, M. (2013). The effects of the structure of banking market and funding strategy on
risk and return. International Review of Financial Analysis, 28, 143-155.
https://doi.org/10.1016/j.irfa.2013.03.001
Bank Stability and Competition: Evidence from Albanian Banking Market
EJBE 2017, 10(19) Page | 149
Anderson, T. W., & Hsiao, C. (1981). Estimation of dynamic models with error
components. Journal of the American statistical Association, 76(375), 598-606.
https://doi.org/10.1080/01621459.1981.10477691
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo
evidence and an application to employment equations. The review of economic
studies, 58(2), 277-297. https://doi.org/10.2307/2297968
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of
error-components models. Journal of econometrics, 68(1), 29-51.
https://doi.org/10.1016/0304-4076(94)01642-D
Beck, T., Demirgüç-Kunt, A., & Levine, R. (2006). Bank concentration, competition, and crises:
First results. Journal of Banking & Finance, 30(5), 1581-1603.
https://doi.org/10.1016/j.jbankfin.2005.05.010
Beck, T., De Jonghe, O., & Schepens, G. (2013). Bank competition and stability: cross-country
heterogeneity. Journal of financial Intermediation, 22(2), 218-244.
https://doi.org/10.1016/j.jfi.2012.07.001
Behname, M. (2012). The compare of concentration and efficiency in banking industry:
evidence from the OPEC countries. Eurasian Journal of Business and Economics, 5(10), 15-24.
Berger, A. N., Klapper, L. F., & Turk-Ariss, R. (2009). Bank competition and financial
stability. Journal of Financial Services Research, 35(2), 99-118.
https://doi.org/10.1007/s10693-008-0050-7
Berger, A. N., & Bouwman, C. H. (2013). How does capital affect bank performance during
financial crises?. Journal of Financial Economics, 109(1), 146-176.
https://doi.org/10.1016/j.jfineco.2013.02.008
Betz, F., Oprică, S., Peltonen, T. A., & Sarlin, P. (2014). Predicting distress in European
banks. Journal of Banking & Finance, 45, 225-241.
https://doi.org/10.1016/j.jbankfin.2013.11.041
Bikker, J. A., Shaffer, S., & Spierdijk, L. (2012). Assessing competition with the Panzar-Rosse
model: The role of scale, costs, and equilibrium. Review of Economics and Statistics, 94(4),
1025-1044. https://doi.org/10.1162/REST_a_00210
Boone, J. (2008). A new way to measure competition. The Economic Journal, 118(531), 1245-
1261. https://doi.org/10.1111/j.1468-0297.2008.02168.x
Boot, A. W., & Thakor, A. V. (2000). Can relationship banking survive competition?. The
journal of Finance, 55(2), 679-713. https://doi.org/10.1111/0022-1082.00223
Smith, M. B. D., De Nicoló, M. G., & Boyd, J. H. (2003). Crisis in competitive versus
monopolistic banking systems (No. 3-188). International Monetary Fund.
https://doi.org/10.5089/9781451859584.001
Boyd, J. H., & De Nicolo, G. (2005). The theory of bank risk taking and competition
revisited. The Journal of finance, 60(3), 1329-1343. https://doi.org/10.1111/j.1540-
6261.2005.00763.x
Boyd, J. H., De Nicolò, G., & Jalal, A. M. (2006). Bank risk-taking and competition revisited:
New theory and new evidence.International Monetary Fund, WP/06/297.
Bresnahan, T. F. (1982). The oligopoly solution concept is identified. Economics Letters, 10(1-
2), 87-92. https://doi.org/10.1016/0165-1765(82)90121-5
Gerti SHIJAKU
Page | 150 EJBE 2017, 10(19)
Bushman, R. M., Hendricks, B. E., & Williams, C. D. (2016). Bank Competition: Measurement,
Decision‐Making, and Risk‐Taking. Journal of Accounting Research, 54(3), 777-826.
https://doi.org/10.1111/1475-679X.12117
Căpraru, B., & Andrieş, A. M. (2015). Nexus Between Concentration and Fragility Across EU
Banking Systems. Procedia Economics and Finance, 32, 1140-1147.
https://doi.org/10.1016/S2212-5671(15)01579-8
Carbó, S., Humphrey, D., Maudos, J., & Molyneux, P. (2009). Cross-country comparisons of
competition and pricing power in European banking. Journal of International Money and
Finance, 28(1), 115-134. https://doi.org/10.1016/j.jimonfin.2008.06.005
Cipollini, A., & Fiordelisi, F. (2012). Economic value, competition and financial distress in the
European banking system. Journal of Banking & Finance, 36(11), 3101-3109.
https://doi.org/10.1016/j.jbankfin.2012.07.014
Cleary, S., & Hebb, G. (2016). An efficient and functional model for predicting bank distress:
In and out of sample evidence. Journal of Banking & Finance, 64, 101-111.
https://doi.org/10.1016/j.jbankfin.2015.12.001
Clerides, S., Delis, M. D., & Kokas, S. (2015). A new data set on competition in national
banking markets. Financial Markets, Institutions & Instruments, 24(2-3), 267-311.
https://doi.org/10.1111/fmii.12030
De Haan, J., & Poghosyan, T. (2012). Bank size, market concentration, and bank earnings
volatility in the US. Journal of International Financial Markets, Institutions and Money, 22(1),
35-54. https://doi.org/10.1016/j.intfin.2011.07.002
De Haan, Jakob, and Tigran Poghosyan. (2012b) “Size, market concentration, and bank
earnings volatility in the US.” Journal of Banking and Finance, 36: 3008-3016.
https://doi.org/10.1016/j.jbankfin.2012.07.008
De Nicolò, G., & Lucchetta, M. (2009). Financial intermediation, competition, and risk: a
general equilibrium exposition.IMF Working Paper WP/09/105.
Dushku, E. (2015). Bank Risk-Taking and Competition in the Albanian Banking Sector. Bank of
Albania, Economic Review 2015 H1, 4-12.
Dushku, E. (2016). Bank Risk-Taking and Competition in the Albanian Banking Sector. South-
Eastern Europe Journal of Economics, 14(2), 187-203.
Duygun, M., Shaban, M., & Weyman-Jones, T. (2015). Measuring competition using the
Boone relative profit difference indicator. Economics Letters, 132, 117-120.
https://doi.org/10.1016/j.econlet.2015.04.022
European Central Bank (2007), “Progress Towards a Framework for Financial Stability
Assessment”, Speech by José Manuel González-Páramo, Member of the Executive Board of
the ECB, OECD World Forum on “Statistics, Knowledge and Policy”, Istanbul, June 2007.
Evrensel, A. (2008). Banking crisis and financial structure: A survival-time analysis.
International Review of Economics & Finance, 17(4), 589-602.
https://doi.org/10.1016/j.iref.2007.07.002
Fernández, A. I., González, F., & Suárez, N. (2016). Banking stability, competition, and
economic volatility. Journal of Financial Stability, 22, 101-120.
https://doi.org/10.1016/j.jfs.2016.01.005
Bank Stability and Competition: Evidence from Albanian Banking Market
EJBE 2017, 10(19) Page | 151
Fiordelisi, F., & Mare, D. S. (2014). Competition and financial stability in European
cooperative banks. Journal of International Money and Finance, 45, 1-16.16.
https://doi.org/10.1016/j.jimonfin.2014.02.008
Fu, X. M., Lin, Y. R., & Molyneux, P. (2014). Bank competition and financial stability in Asia
Pacific. Journal of Banking & Finance, 38, 64-77.
https://doi.org/10.1016/j.jbankfin.2013.09.012
Fungáčová, Z., & Weill, L. (2009). How market power influences bank failures: Evidence from
Russia. Economics of Transition, 21(2): 301–322. https://doi.org/10.1111/ecot.12013
Hall, R., A. (2005). Generalized Methods of Moments. Oxford University Press.
Han, C., & Phillips, P. C. (2010). GMM estimation for dynamic panels with fixed effects and
strong instruments at unity. Econometric theory, 26(01), 119-151.
https://doi.org/10.1017/S026646660909063X
Hellmann, T. F., Murdock, K. C., & Stiglitz, J. E. (2000). Liberalization, moral hazard in
banking, and prudential regulation: Are capital requirements enough?. American economic
review, 147-165. https://doi.org/10.1257/aer.90.1.147
Iwata, G. (1974). Measurement of conjectural variations in oligopoly. Econometrica: Journal
of the Econometric Society, 947-966. https://doi.org/10.2307/1913800
Jeon, J. Q., & Lim, K. K. (2013). Bank competition and financial stability: A comparison of
commercial banks and mutual savings banks in Korea. Pacific-Basin Finance Journal, 25, 253-
272. https://doi.org/10.1016/j.pacfin.2013.10.003
Jiménez, G., Lopez, J. A., & Saurina, J. (2013). How does competition affect bank risktaking?.
Journal of Financial Stability, 9(2), 185-195.
https://doi.org/10.1016/j.jfs.2013.02.004
Kasman, A., & Carvallo, O. (2014). Financial stability, competition and efficiency in Latin
American and Caribbean banking. Journal of Applied Economics, 17(2), 301-324.
https://doi.org/10.1016/S1514-0326(14)60014-3
Kasman, S., & Kasman, A. (2015). Bank competition, concentration and financial stability in
the Turkish banking industry. Economic Systems, 39(3), 502-517.
https://doi.org/10.1016/j.ecosys.2014.12.003
Keeley, M. C. (1990). Deposit insurance, risk, and market power in banking. The American
Economic Review, 1183-1200.
Kick, T. K., & Prieto, E. (2015). Bank risk taking and competition: Evidence from regional
banking markets.Review of Finance 19(3): 1185-1222. https://doi.org/10.1093/rof/rfu019
Robinson, J., & Abba, L. (1934). The Concept Monopoly and the Measurement of Monopoly
Power. Review of Economic Studies.1(3): 157-175. https://doi.org/10.2307/2967480
Leroy, A., & Lucotte, Y. (2017). Is there a competition-stability trade-off in European
banking?. Journal of International Financial Markets, Institutions and Money, 46, 199-215.
https://doi.org/10.1016/j.intfin.2016.08.009
Yeyati, E. L., & Micco, A. (2007). Concentration and foreign penetration in Latin American
banking sectors: Impact on competition and risk. Journal of Banking & Finance, 31(6), 1633-
1647. https://doi.org/10.1016/j.jbankfin.2006.11.003
Liu, H., Molyneux, P., & Nguyen, L. H. (2012). Competition and risk in South East Asian
commercial banking. Applied Economics, 44(28), 3627-3644.
https://doi.org/10.1080/00036846.2011.579066
Gerti SHIJAKU
Page | 152 EJBE 2017, 10(19)
Liu, H., Molyneux, P., & Wilson, J. O. (2013). Competition and stability in European banking: a
regional analysis. The Manchester School, 81(2), 176-201. https://doi.org/10.1111/j.1467-
9957.2011.02285.x
Marques-Ibanez, D., Altunbas, Y., & Leuvensteijn, M. V. (2014). Competition and Bank Risk
The Effect of Securitization and Bank Capital. European Central Bank Working paper series,
Nr 1678, May. https://doi.org/10.2139/ssrn.2459063
Martinez-Miera, D., & Repullo, R. (2010). Does competition reduce the risk of bank
failure?. Review of Financial Studies, 23(10), 3638-3664. https://doi.org/10.1093/rfs/hhq057
Matutes, C., & Vives, X. (2000). Imperfect competition, risk taking, and regulation in
banking. European Economic Review, 44(1), 1-34. https://doi.org/10.1016/S0014-
2921(98)00057-9
Mirzaei, A., Moore, T., & Liu, G. (2013). Does market structure matter on banks’ profitability
and stability? Emerging vs. advanced economies. Journal of Banking & Finance, 37(8), 2920-
2937. https://doi.org/10.1016/j.jbankfin.2013.04.031
Skully, M., & Perera, S. (2012). Market power, revenue diversification and bank stability:
Evidence from selected South Asian countries. Journal of International Financial Markets,
Institutions and Money, 22(4), 897-912. https://doi.org/10.1016/j.intfin.2012.05.008
Note, S. (2007). Competition in the Albanian banking system. Bank of Albania Working Paper,
Tirana.
OECD. (2010). Competition, Concentration and Stability in the Banking Sector. Competition
Law & Policy OECD, Policy Roundtables.
Pawlowska, M. (2016). Does the size and market structure of the banking sector have an
effect on the financial stability of the European Union?. The Journal of Economic
Asymmetries, 14, 112-127. https://doi.org/10.1016/j.jeca.2016.07.009
Roodman, D. (2009). A note on the theme of too many instruments. Oxford Bulletin of
Economics and statistics, 71(1), 135-158. https://doi.org/10.1111/j.1468-0084.2008.00542.x
Samantas, I. (2013). Bank competition and financial (in) stability in Europe: A sensitivity
analysis.MPRA Paper No. 51621. https://doi.org/10.2139/ssrn.2358999
Schaeck, K., Cihak, M., & Wolfe, S. (2009). Are competitive banking systems more
stable?. Journal of Money, Credit and Banking, 41(4), 711-734.
https://doi.org/10.1111/j.1538-4616.2009.00228.x
Schaeck, K., & Cihák, M. (2014). Competition, efficiency, and stability in banking. Financial
Management, 43(1), 215-241. https://doi.org/10.1111/fima.12010
Sere-Ejembi, A., Udom, I. S., Salihu, A., Atoi, N. V., & Yaaba, B. N. (2014). Developing banking
system stability index for Nigeria. CBN Journal of Applied Statistics, 5(1), 49-77.
Shijaku, G. (2016). Banking Stability and its Determinants: A Sensitivity Analysis on
Methodological Changes. Bank of Albania, Economic Review 2016, 6H-1, 18-30.
Shijaku, G. (2017). Bank competition in Albania: An analysis through Boone indicator.” Bank
of Albania, Economic Review 2016 H2, 52-67.
Soedarmono, W., Machrouh, F., & Tarazi, A. (2013). Bank competition, crisis and risk taking:
Evidence from emerging markets in Asia. Journal of International Financial Markets,
Institutions and Money, 23, 196-221. https://doi.org/10.1016/j.intfin.2012.09.009
Bank Stability and Competition: Evidence from Albanian Banking Market
EJBE 2017, 10(19) Page | 153
Tabak, B. M., Fazio, D. M., & Cajueiro, D. O. (2012). The relationship between banking
market competition and risk-taking: Do size and capitalization matter?. Journal of Banking &
Finance, 36(12), 3366-3381. https://doi.org/10.1016/j.jbankfin.2012.07.022
Uhde, A., & Heimeshoff, U. (2009). Consolidation in banking and financial stability in Europe:
Empirical evidence. Journal of Banking & Finance, 33(7), 1299-1311.
https://doi.org/10.1016/j.jbankfin.2009.01.006
Van Leuvensteijn, M., Bikker, J. A., van Rixtel, A. A., & Sørensen, C. K. (2011). A new approach
to measuring competition in the loan markets of the euro area. Applied Economics, 43(23),
3155-3167. https://doi.org/10.1080/00036840903493234
Van Leuvensteijn, M., Sørensen, C. K., Bikker, J. A., & Van Rixtel, A. A. (2013). Impact of bank
competition on the interest rate pass-through in the euro area. Applied Economics, 45(11),
1359-1380. https://doi.org/10.1080/00036846.2011.617697
Wagner, W. (2010). Loan market competition and bank risk-taking. Journal of Financial
Services Research, 37(1), 71-81. https://doi.org/10.1007/s10693-009-0073-8
Weiß, G. N., Neumann, S., & Bostandzic, D. (2014). Systemic risk and bank consolidation:
international evidence. Journal of Banking & Finance, 40, 165-181.
https://doi.org/10.1016/j.jbankfin.2013.11.032
Zhao, T., Casu, B., & Ferrari, A. (2010). The impact of regulatory reforms on cost structure,
ownership and competition in Indian banking. Journal of Banking & Finance, 34(1), 246-254.
https://doi.org/10.1016/j.jbankfin.2009.07.022

Thank you for copying data from http://www.arastirmax.com