Competition and stability in banking : the role of regulation and competition policy / Xavier Vives.
2016
HG1573 .V58 2016 (Map It)
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Details
Author
Title
Competition and stability in banking : the role of regulation and competition policy / Xavier Vives.
Published
Princeton : Princeton University Press, 2016.
Call Number
HG1573 .V58 2016
ISBN
9780691171791 (hardback)
0691171793 (hardback)
0691171793 (hardback)
Description
xx, 324 pages : illustrations ; 24 cm
System Control No.
(OCoLC)944957805
Summary
"Does too much competition in banking hurt society? What policies can best protect and stabilize banking without stifling it? Institutional responses to such questions have evolved over time, from interventionist regulatory control after the Great Depression to the liberalization policies that started in the United States in the 1970s. The global financial crisis of 2007-09, which originated from an oversupply of credit, once again raised questions about excessive banking competition and what should be done about it. Competition and Stability in Banking addresses the critical relationships between competition, regulation, and stability, and the implications of coordinating banking regulations with competition policies. Xavier Vives argues that while competition is not responsible for fragility in banking, there are trade-offs between competition and stability. Well-designed regulations would alleviate these trade-offs but not eliminate them, and the specificity of competition in banking should be accounted for. Vives argues that regulation and competition policy should be coordinated, with tighter prudential requirements in more competitive situations, but he also shows that supervisory and competition authorities should stand separate from each other, each pursuing its own objective. Vives reviews the theory and empirics of banking competition, drawing on up-to-date analysis that incorporates the characteristics of modern market-based banking, and he looks at regulation, competition policies, and crisis interventions in Europe, the United States, as well as emerging economies. Focusing on why banking competition policies are necessary, Competition and Stability in Banking examines regulation's effect on the industry's efficiency and effectiveness."-- Provided by publisher.
Bibliography, etc. Note
Includes bibliographical references (pages 283-313) and index.
Record Appears in
Table of Contents
List of Figures and Tables
xi
Preface
xiii
Abbreviations
xvii
ch. 1
Introduction
1
ch. 2
Trends In Banking
7
2.1.
Expansion of the Financial Sector, Economic Growth, Financial Innovation, and Systemic Risk
10
2.1.1.
Financial Sector Growth and Economic Growth
10
2.1.2.
Financial Innovation and Systemic Risk
12
2.2.
Business Models and the Challenge to Traditional Banking
18
2.2.1.
Business Models and New Competitors
18
2.2.2.
Evolution of Competition
21
2.3.
Consolidation and the Evolution of Concentration
27
ch. 3
Fragility In Banking And The Role Of Regulation
37
3.1.
Uniqueness of Banks and Fragility
37
3.1.1.
Roots of Fragility
38
3.1.2.
Contagion and Systemic Risk
40
3.1.3.
Social Cost of Failure
43
3.2.
Shadow Banking and the 2007--2009 Crisis
44
3.3.
Regulation and Financial Stability Facilities
47
3.3.1.
Regulatory Aims and Tools
47
3.3.2.
Prudential Regulation and the Safety Net
48
3.3.3.
Bailout Distortions
50
3.3.4.
Resolution
51
3.4.
2007--2009 Crisis, Regulatory Failure, and Regulatory Reform
53
3.4.1.
2007--2009 Crisis and Regulatory Failure
53
3.4.2.
Macroprudential Regulation
56
3.4.3.
Regulatory Reform
57
3.5.
Regulation in Emerging/Developing Economies
64
ch. 4
Analysis Of Competition In Banking: Theory And Empirics
70
4.1.
Theoretical Models
72
4.1.1.
Pricing
72
4.1.2.
Product Differentiation
73
4.1.3.
Frictions: Switching Costs and Asymmetric Information
74
4.1.4.
Network Externalities and Two-Sided Markets
76
4.1.5.
Market Structure, Entry, and New Competitors
79
4.1.6.
Mergers
83
4.2.
Empirical Studies
85
4.2.1.
SCP Paradigm
85
4.2.2.
New Empirical IO
88
4.2.3.
Impact of Deregulation
91
4.2.4.
Asymmetric Information and Relationship Banking
93
4.2.5.
Mergers
94
4.3.
Behavioral Industrial Organization and Banking
97
4.3.1.
Behavioral Biases and Their Impact on Consumer Behavior
98
4.3.2.
Biases in Financial Markets
100
ch. 5
Competition, Regulation, And Stability In Banking: Theory And Evidence
106
5.1.
Competition and Stability: The Theory
106
5.1.1.
Competition and Runs
106
5.1.2.
Competition and Risk Taking
109
5.2.
Competition and Stability: The Evidence
115
5.2.1.
Competition and Systemic Risk
115
5.2.2.
Liberalization, Risk Taking, and Systemic Risk
116
5.2.3.
Concentration, Competition, and Stability
118
5.2.4.
Consolidation, Diversification, Internationalization, and Stability
121
5.2.5.
Lessons from the Subprime Financial Crisis
122
5.3.
Interaction of Competition Policy and Regulation
124
5.3.1.
Competition-Stability Trade-Off and Regulation
124
5.3.2.
Competition-Stability Trade-Off in Emerging Economies
129
5.3.3.
Coordination of Competition Policy and Prudential Regulation
130
5.4.
Assessment of the Regulatory Reform Post 2007--2009 Crisis
134
ch. 6
Overview Of Competition Policy Practice
141
6.1.
Concerns of the Competition Authorities in the EU and the UK
142
6.1.1.
EU
142
6.1.2.
UK
143
6.2.
Market Definition
146
6.3.
Mergers
149
6.3.1.
United States
150
6.3.2.
EU
151
6.4.
Cartels and Restrictive Agreements
154
6.4.1.
International Cartels
156
6.4.2.
Credit Cards and Two-Sided Markets
159
6.5.
State Aid in the EU
161
6.6.
Consumer Protection and Behavioral Banking
163
6.6.1.
United States
166
6.6.2.
EU
168
6.7.
Banking Competition Policy in Emerging Economies
170
6.7.1.
Brazil
170
6.7.2.
China
172
6.7.3.
India
174
6.7.4.
Mexico
175
6.7.5.
Russian Federation
178
6.7.6.
Southern Mediterranean Countries
180
ch. 7
Competition Policy, Regulatory Architecture, And Public Intervention In The Crisis
183
7.1.
Regulatory Architecture and the Competition Authority
183
7.1.1.
Design of the Financial Regulatory Architecture
183
7.1.2.
EU
190
7.1.3.
UK
195
7.2.
Public Intervention, State Ownership, and Competition Distortions
199
7.2.1.
Systemic Crisis, State Aid, and Competitive Distortions
199
7.2.2.
State Ownership in Banking
201
7.2.3.
Savings Banks
202
7.3.
Competition Policy and State Aid in the EU
205
7.3.1.
2007--2009 Crisis and Banking Resolution Tools
206
7.3.2.
State Aid and Competition Distortions
209
7.3.3.
Competition Policy, TBTF, and Moral Hazard
213
7.4.
Merger Policy and the "Failing-Firm Defense" Doctrine
215
7.4.1.
United States
215
7.4.2.
UK
216
7.4.3.
"Failing-Firm Defense" in Banking
217
7.4.4.
Spain
218
ch. 8
Summary Of Findings And Policy Implications
222
8.1.
Summary of Findings
222
8.1.1.
Evolution of Banking
223
8.1.2.
Role of Regulation and the Response to the 2007--2009 Crisis
224
8.1.3.
Nature of Competition in Banking
227
8.1.4.
Trade-Off between Competition and Stability
229
8.1.5.
Competition Policy Practice in the Banking Sector
231
8.2.
Policy Implications
233
8.2.1.
Competition Policy Recommendations
233
8.2.2.
Assessment of Regulatory Reform
235
8.2.3.
Regulation and Competition Policy Must Be Coordinated
237
8.2.4.
Regulatory Architecture
239
8.3.
Challenges
241
Notes
245
References
283
Index
315