Year-end Sale % OFF 
Abstract
Investigating the competition-stability view in relation to the banking sector, the intention behind this study was to find out how far efficiency is associated with a competitive banking environment and if it warrants the continued agitation towards fostering increased competition in banking markets around the world. This view has significant support in spite of the potential instability that could possibly result from risk appetite, which the competition-fragility view holds to be associated with competition. We employed a stochastic frontier analysis (SFA) to model an instrumental variable of competition resulting from increased efficiency or inefficiency due to bank-level competition, which we used in the regression of competition against stability using the generalized method of moments (GMM). We found that competition increased the efficiency of the banking sector over the study period. The regression results of our instrument against stability in the Sub-Saharan Africa region was found to be positive and strongly significant with stability providing evidence of transmission from competition to efficiency to stability, and, hence consistent with competition-stability views. Our conclusion is that while competition is desirable, it must be optimized to enhance efficiency without which the effects become detrimental. Therefore, there must be ongoing regulation to check excessive competition.
Highlights
Competition and stability in banks are important issues to bankers and regulators alike especially in the wake of the 2007/2009 financial crisis
Based on the questions we posed to actualize the objective of this study, we tested for these three hypotheses related to our expectation of the relationship between competition and stability in the Sub-Saharan Africa (SSA) region: 1. There is no significant relationship between competition and efficiency; 2
There is no link between competition and stability that results from efficiency
Summary
Competition and stability in banks are important issues to bankers and regulators alike especially in the wake of the 2007/2009 financial crisis. Bank competition has become even more of concern as policy makers in the Sub-Saharan Africa (SSA) region rethink their strategies to break the yoke of poverty and transform their economies to those of their developed counterparts. Policy expectation is that a competitive banking environment will promote efficiency, increase overall competitiveness in other sectors of an economy, and promote economic growth. The role of competition in the financial stability of the SSA region is examined by evaluating a panel data analysis of 37 SSA countries’ commercial banks’ data. A new look at the role of bank competition in bringing about the dynamic efficiency of the banking system and other sectors without compromising financial stability is essential if the SSA region is to harness the gains of competition without compromising financial system stability
Sign-in/Register to view highlights & summary 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.
