Abstract
This paper tests the average relationship between competition and bank stability for 70 banks operating in the Gulf Cooperation Council Countries during the period 2001-2011. Our results show that an increase in competition contributes to bank fragility and that its contribution depends on the strength of regulations. In particular, the impact on bank soundness will be stronger the lower the capital requirements, the weaker the supervisory power, the stricter the regulations imposed on bank activities, and the less transparency and market discipline. These findings carry important policy implications for banks’ stability in the Gulf Cooperation Council Countries.
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