This paper addresses this issue and examines how bank competition affects their stability in the German market. 317 banks are investigated over the period from 2013 to 2019 using panel data estimation models such as the fixed effects and random effects estimator. In order to get a good understanding of the problem and to design an optimal model, the theoretical basics are explained beforehand. In addition, a detailed discussion of how bank competition and stability can be measured is included in the paper. A special focus will be placed on the Lerner index, the H-statistic, and the Boone indicator (competition measures) as well as the Z-score and non-performing loans (stability measures). Previous empirical results and a description of the main characteristics of the German banking market complete the preparation for the model design and implementation, which are discussed and explained in conclusion.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Theoretical Background
- Charter Value Hypothesis
- The Risk-Shifting Effect
- Correlated Default Risk
- Conclusion on Theoretical Concepts and Empirical Evidence
- Bank Competition and Stability
- German Banking Sector
- Characteristics of the German banking market
- Previous empirical results
- Empirical Analysis
- Data
- Estimate Bank Competition
- Estimate Bank Stability
- Findings
- Data
- Conclusion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
The paper investigates the relationship between bank competition and stability in the German banking market. It analyzes the impact of increased competition on the stability of 317 banks over the period from 2013 to 2019, utilizing panel data estimation models.
- The impact of bank competition on financial stability
- The theoretical concepts of charter value hypothesis, risk-shifting effect, and correlated default risk
- The measurement of bank competition and stability through indices like the Lerner index, H-statistic, Boone indicator, Z-score, and non-performing loans
- The characteristics and previous empirical findings of the German banking market
- The empirical analysis of the relationship between bank competition and stability using panel data estimation models
Zusammenfassung der Kapitel (Chapter Summaries)
- The introduction discusses the increasing pressure on the German banking market due to the rise of BigTech and Fintech firms, low interest rates, and regulatory requirements, raising the question of how increased competition affects banking stability.
- The theoretical background chapter explores three hypotheses regarding the relationship between bank competition and stability: the charter value hypothesis, the risk-shifting effect, and correlated default risk. These hypotheses offer conflicting perspectives on the direction of the relationship. The chapter concludes by briefly discussing previous empirical results.
- The chapter on bank competition and stability defines and examines key concepts related to these topics. It explores measures of bank competition, including the Lerner index, H-statistic, and Boone indicator. It also examines measures of banking stability such as the Z-score and non-performing loans.
- The chapter on the German banking sector provides an overview of the characteristics of the German banking market and previous empirical results related to the relationship between bank competition and stability in this context.
- The empirical analysis chapter outlines the data used for the study, including the methods for estimating bank competition and stability. It also presents preliminary findings from the analysis.
Schlüsselwörter (Keywords)
The primary focus of this paper is on the relationship between bank competition and stability. Key concepts include charter value hypothesis, risk-shifting effect, correlated default risk, bank competition measures (Lerner index, H-statistic, Boone indicator), bank stability measures (Z-score, non-performing loans), German banking market characteristics, and empirical analysis using panel data estimation models.
- Quote paper
- Franz Lennart Wunderlich (Author), 2021, Bank Competition and Stability in the German Banking Market, Munich, GRIN Verlag, https://www.grin.com/document/1274853
