Abstract
Abstract The primary purpose of this paper is to empirically investigate the impact of bank competition on financial stability in India. We use a dynamic panel model to examine whether an increase in bank competition hindrances financial stability of commercial banks in India over the period 1996 to 2016. Findings reveal that in India, a higher degree of bank competition is positively associated with the prevalence of non-performing loans. Additionally, the positive impact of the Lerner index on Z-score lends support to competition-fragility hypothesis. However, we argue that both the views of competition-stability and competition-fragility can coexist in a single banking system like India.
Highlights
Studies on the relationship between bank competition and financial stability have drawn a great deal of attention of academics, policymakers, and regulators for several reasons
The primary purpose of this paper is to empirically investigate the impact of bank competition on financial stability in India
We further investigate the effect of competition on stability using equity to total assets as a proxy for financial stability in model 4 to 6
Summary
Studies on the relationship between bank competition and financial stability have drawn a great deal of attention of academics, policymakers, and regulators for several reasons. One of the reasons that can be extended in this regard is the global financial crisis of 2007-2008. As far as the effect of competition on stability is concerned, Keeley (1990) and Beck et al, (2013) have argued about the unintended consequences of competition on increasing instability. Allen and Gale (2004) theoretically viewed higher bank competition to be conducive for efficiency but not for stability. Despite perceiving competition as a precondition for financial development, growth, technological innovation, and efficiency, there has been no broad consensus whether an increase in competitiveness leads to greater stability in the financial system of emerging and developing economies
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
