Consolidation in banking and financial stability in Europe: Empirical evidence |
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Authors: | André Uhde Ulrich Heimeshoff |
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Institution: | 1. Department of Economics, University of Bochum, Germany;2. Department of Economics, University of Erlangen-Nuremberg, Germany |
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Abstract: | Using aggregate balance sheet data from banks across the EU-25 over the period from 1997 to 2005 we provide empirical evidence that national banking market concentration has a negative impact on European banks’ financial soundness as measured by the Z-score technique while controlling for macroeconomic, bank-specific, regulatory, and institutional factors. Furthermore, our analysis reveals that Eastern European banking markets exhibiting a lower level of competitive pressure, fewer diversification opportunities and a higher fraction of government-owned banks are more prone to financial fragility whereas capital regulations have supported financial stability across the entire European Union. |
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Keywords: | G21 G28 G34 L16 |
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