Another Look at ‘Bank Competition and Financial Stability: Much Ado About Nothing’?

Abstract

This study replicates Zigraiova and Havranek's (2016) meta‐analysis of banking competition and financial stability. It performs multiple types of replications: a ‘Reproduction’ replication where Z&H's data and code are verified to reproduce the results of their study; a ‘Repetition’ replication where the studies used by Z&H are independently recoded and then re‐analysed; an ‘Extension’ replication where additional studies on banking competition and stability are analysed; and a ‘Robustness Analysis’ where we check Z&H's results using an alternative empirical procedure. Our analysis strongly confirms Z&H's main finding that competition in the banking sector has an economically negligible effect on financial stability. This result is consistently confirmed across a variety of replication analyses. Most impressively, we confirm their finding even when we analyse a completely independent set of 35 studies not included in Z&H's meta‐analysis. Our results for Z&H's other findings are less supportive. As the first comprehensive replication of a meta‐analysis, this study also provides insights into the robustness of meta‐analysis. We find that meta‐regression analysis, where estimated effects are related to data, estimation, and study characteristics, is sensitive to how data are coded and to the choice of estimation procedure; and that this sensitivity extends to ‘best practice’ estimates.

Bank survival around the world: A meta‐analytic review

“…1 In a recent survey of metaanalysis applications in finance research, Geyer-Klingeberg et al ( 2020) identified surprisingly few systematic reviews of banking. There are only six such meta-analyses and they concern banking efficiency (Aiello & Bonanno, 2016, 2018Iršová & Havránek, 2010;), relationship lending (Kysucky & Norden, 2016), and bank competition and financial stability (Bandaranayake et al 2020;Žigraiová & Havránek, 2016 [the last study is not included in Geyer-Klingeberg et al ( 2020)]). However, none of these meta-analyses investigate bank survival/failure or the impact of CAMELS.…”

“…There are only six such meta‐analyses and they concern banking efficiency (Aiello & Bonanno, 2016, 2018; Iršová & Havránek, 2010; ), relationship lending (Kysucky & Norden, 2016), and bank competition and financial stability (Bandaranayake et al. 2020; Žigraiová & Havránek, 2016 [the last study is not included in Geyer‐Klingeberg et al. (2020)]).…”

Exploring the Impacts of Bank Competition on Financial Stability: A South Asian Perspective

“…Some of the studies found negative relationship between competition and financial stability. Explaining the results, the researchers argued that intense competition among banks slims and trims the profit margins and the banks, to maintain profitability, are likely to overlook prudence and indulge in high-risk businesses, which ultimately damage financial stability (Bandaranayake, Das, & Reed, 2020; Fiordelisi & Mare, 2014; Noman, Gee & Isa, 2017;Nguyen, Le & Tran, 2018). Competition encourages financial institutions to improve their risk management strategies, thereby ultimately strengthening the market stability (Rahman et al, 2021;Berger et al, 2017;Fu et al, 2014;Zigraiova & Havranek, 2016).…”

Organización industrial de la banca, regulación financiera y antimonopolios

“…Pero estas dos regulaciones pueden tener conflictos si la regulación del riesgo logra influir sobre la organización industrial de los bancos y viceversa. Sobre este punto, hay una extensa literatura que investiga la relación entre la competencia bancaria y la estabilidad del sistema financiero, por ejemplo, Bandaranayake et. al.…”