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Hello, I'm Thorsten Beck, I'm a professor of banking and finance at Cass Business School at City University London, and I've worked in the area of financial development and financial stability over the past 15 years or so. The topic I'm going to talk about today is: bank competition and stability, friends or foes?
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Stability concerns have been at the centre of banking sector policies for the last couple of decades, and for good reason. Throughout the world in both developing and developed countries, there have been a lot of banking crises. They have been a lot of bank failures and a lot of systemic banking crises where a whole banking system has got into trouble. The issue of how competition affect stability is per se an interesting question not just for academics, but very important for policy makers and for practitioners. In general economists like competition, that's what we teach everybody in their very first courses. In the financial sector, especially in the banking system on the other hand, the role of competition is quite controversial. On one hand, having less competition might actually give incentives for banks to engage in long-term relationships with firms, their borrowers. On the other hand, not having enough competition might hamper innovation and contestability, and might reduce the benefits for customers of financial services. Similarly on the stability side, restrictions on competition have often been justified with the risk of bank failure, with the risk of banks' stability. Over the past couple of decades what we have been observing across the world is a trend towards consolidation, meaning a more concentrated banking system and larger banks. Again this makes the question of the relationship between bank competition, bank market structure and bank stability a very relevant one.

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Bank competition and stability: friends or foes?

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