Essays on bank competition and financial stability.
Degree GrantorUniversity of Canterbury
Degree NameDoctor of Philosophy
The three main essays in this thesis focus on exploring the relationship between bank competition and financial stability. Chapter one gives an introduction to the literature on bank competition and stability. Chapter two addresses the question “are competitive banking systems more stable?” This chapter is a replication of the work of Schaeck, Cihak, and Wolfe (2009) and it re-analyses the authors’ original data. In addition, this chapter provides various robustness tests by comparing currently available data from the same (as the authors’) or alternative data sources and extending the sample period. In doing so, it fails to confirm Schaeck et al. (2009) conclusion that competition promotes stability.
The third and fourth chapters focus on the question: “what is the effect of bank competition on stability?” These two chapters undertake two major meta-regression analyses to identify the effect of competition on stability. The third chapter is a replication of Zigraiova and Havranek (2016). It is comprised of two validation exercises. The first is a pure replication of the authors’ analysis using their data and code. This analysis exactly reproduces the authors’ results, confirming their finding of a small effect from bank competition on financial stability. The second exercise recodes the same 31 studies using the same categories considered by the original authors. The results from the re-coded data confirm their main conclusions.
The fourth chapter updates the list of studies that estimate the relationship between bank competition and financial stability. There are a total of 35 additional studies with 762 estimates. The results using the new data confirm a small negative effect from bank competition on stability.
The fifth chapter addresses the final research question, “how does bank competition affect stability?” This chapter uses bank-level data from the USA during the period 2000-2017. It computes multiple competition and stability measures to examine how each competition measure is associated with each stability measure. The relationship between bank competition and stability is found to vary based on the measures, and estimation method, used. The results generally support the competition-fragility hypothesis, but there are exceptions, and many of the estimates are statistically insignificant.