THE RESEARCH OF CONCENTRATION EFFECT ON BANKING SYSTEM FINANCIAL STABILITY

Abstract

The consolidation and concentration of banks around the globe is fueling an active public debate among scientists and politicians on the impact of concentration on banking system efficiency, competition, financial and hence macroeconomic stability. There has been greater tolerance of concentration in banking than in other industries, because of a presumed benefit of increased financial stability. As the results of many researches show the level of concentration in banking is higher than in other industries.

The importance of concentration effect on banking system stability increased for several reasons in recent years. The main reason is substantial processes of banks consolidation and concentration both at a global and national level. Central banks and prudential regulators have responded to recent consequences of financial crises with an increased focus on financial stability. The third reason is growing interest of researchers on concentration effect on banking system efficiency, stability and economic growth.

Growing focus on baking system stability is not surprising, given banks’ central role in financial systems and economies. During several decades the boundaries between banks and other parts of financial markets have been gone as banks have expanded into other activities including in securities markets, funds management and insurance. The dramatic growth in the assets size of the global banks over the past two decades had strengthened theirs role both at a global and national level.

The aim of this article is to analyze global trends in banking concentration and concentration effect on banking system stability. The research methods were used in this paper: the analysis and synthesis of scientific literature, correlation and regression analysis, statistical methods as well as empirical research of the information on 162 banking systems concentration during period of 1987-2007.

The research results had showed that concentration level of banking systems decreased to 71 percent in 2007 during analyzed period of 1987-2007. The analysis does not provide support for the view that bank concentration is closely associated with the stability of the banking system.