Macroprudential policies and bank competition: International bank-level evidence

The paper analyzes the effect of changes in eight types of bank-oriented macroprudential policies on bank competition and stability. Using a bank-level database of a maximum of 2511 listed banks from 52 countries, I find that a tightening in bank-oriented macroprudential policies on average increases both bank competition and stability. However, there are differences across policies and countries. Loan supply and liquidity-based policies increase bank competition whereas capital and tax-based policies reduce bank competition. Tighter legal restrictions on entry and activity in a country reduce the positive (increase the negative) effect of macroprudential policies on bank competition. In terms of policy implications, I identify a sub-set of especially useful macroprudential policies that increase not only financial stability but also bank competition.