Abstract:
Literature present conflicting views on the effect of bank competition on financial
stability. Some argue that competition increases adverse shocks in the financial system while
others argue that it reduces the likelihood of such events. The purpose of this study is to further
examine this relationship using a more recent systemic banking crises database of Laeven and
Valencia (2018). There are 61 countries which had experienced systemic crises during 1996-
2017. This study used Lerner index and Boone indicator as proxy measures of competition
and three estimation techniques to estimate the relationship. The results indicate that the effect
of competition on financial stability varies with estimation techniques and proxy measures of
competition and stability. Lerner index indicates that competition increases financial
instability while Boone indicator shows the opposite. Thus, this study concludes with mixed
evidence on the relationship between bank competition and financial stability
