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Does competition influence bank failures?

Evidence from Russia

Authors


  • For valuable comments and suggestions, we thank Paul Wachtel, John Bonin, Iikka Korhonen, David Mayes, Jana Fidrmucova, Paul Kupiec, Joao Santos, Sherrill Shaffer, Francesco Vallascas, participants of the IFABS Conference in Rome (June 2011), FMA conference in New York (October 2010), FMA European Meeting in Hamburg (June 2010), ACES-ASSA Meeting in Atlanta (January 2010), CES-Ifo Conference Banking and Institutions in Munich (December 2009), Southern Finance Association Meeting in Captiva Island (November 2009), Conference on 20 Years of Transition in Central and Eastern Europe in London Metropolitan School (September 2009), EBRD seminar in London (September 2009), the Xth International Academic Conference on Economic and Social Development in Moscow (April 2009), and the seminars in Strasbourg (April 2010), Groningen (December 2009), Bratislava (April 2009) and BOFIT in Helsinki (March 2009).

Abstract

There has been a notable debate in the banking literature on the impact of bank competition on financial stability. The aim of this article is to provide the first investigation of the role of bank competition on the occurrence of bank failures. We analyse this issue on a large sample of Russian banks for the period 2001–2007, as the Russian banking industry is a unique example of an emerging market which has undergone a large number of bank failures during the last decade. Our findings support the view that tighter bank competition enhances the occurrence of bank failures. Thus, measures that increase bank competition could undermine financial stability.

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