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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.
