Banking Competition and Capital Ratios

September 1, 2007

Preview Citation

Format: Chicago

Martin Cihak, and Klaus Schaeck. Banking Competition and Capital Ratios, (USA: International Monetary Fund, 2007) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We use data for more than 2,600 European banks to test whether increased competition causes banks to hold higher capital ratios. Employing panel data techniques, and distinguishing between the competitive conduct of small and large banks, we show that banks tend to hold higher capital ratios when operating in a more competitive environment. This result holds when controlling for the degree of concentration in banking systems, inter-industry competition, characteristics of the wider financial system, and the regulatory and institutional environment.

Subject: Bank soundness, Banking, Capital adequacy requirements, Commercial banks, Competition, Deposit insurance, Financial institutions, Financial markets, Financial regulation and supervision, Financial sector policy and analysis, Loan loss provisions

Keywords: Asset growth, Bank capital, Bank capital ratios, Bank competition, Bank i., Bank ownership structure, Bank performance, Bank risk, Bank soundness, Banking industry, Banking system, Banks' capital ratios, Bank-year observation, Capital adequacy ratio, Capital adequacy requirements, Commercial banks, Competition, Dependent variable, Europe, I. output, Loan loss provisions, Market share, Market structure, Output of bank, Regulation, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/216
Stock No:

WPIEA2007216
ISBN:

9781451867800
ISSN:

1018-5941

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