Introduction
The banking and financial sector and the need for regulation have attracted attention and concentration both in academic and policy discussions. The question of how competition affects system’s stability and regulation effectiveness is not well stated yet. The appeal of competition in the banking sector has been a matter for discussions for a long time. After the crises of the 1930s, antagonism was kept in low levels in order to protect system’s stability. There was a wave of deregulation in last decades which raised many restrictions on competition, and as a result banks were able to extend their investments in riskier actions and new locations. Afterwards there was observed a new wave of breakdowns and failures in the 1980s and 1990s. The growth in competition after the deregulation wave was viewed as the major cause behind this new system’s instability. Thus there was spread a first idea of a negative relationship between system’s stability and competition since the 1990s, but more recent approaches show that the relationship is more complex.
How is competition’s mechanism in the banking sector? Are there any benefits? It is difficult to answer. The main argument in favour of competition relative to cost minimization and efficient resources distribution apply to the banking sector. On the other hand, however, a variety of market failures complicates the performance of competition and makes the competitive examples not suitable for the banking sector.
The simple statement that banks contest on both sides of the balance sheet may result to exits from the competitive outcome. When banks compete for loans and deposits, they may want to monopolize in one market in an effort to achieve a monopoly on the other according...
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Bank profitability has always attracted the interest of academics, economists, and policymakers. With increasing regulation during the global financial crisis, however is gives an understanding of what drives bank profits is increasingly crucial. Literature that has examined bank profitability in many countries in the l...