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Bank competition and financial stability : A comparative study of mutual savings banks and commercial banks in Korea

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Frame of Image du ** Economist, Early Warning Team, Marcroprudential Analysis Department, the Bank of Korea, 39, Namdaemunno 3-Ga, Jung-Gu, Seoul, 100-794, Republic of Korea, Email: ikkyulim@bok.or.kr The authors especially thank Tae Soo Kang, Byung Hee Sung, Jeong Eui Suh and Ju Yeon Lee at the Bank of Korea, and seminar participants at the financial stability forum of the Bank of Korea held in December 2012 for their helpful comments and suggestions on our original version. Jeon, professor at Dongguk University, acknowledges the financial support and hospitality of the Bank of Korea. All remaining errors are our own.
Contents
I. Introduction ·················································································· 1 II. Literature Review ······································································· 4
1. Estimation of competition ·························································· 4 2. Bank competition and stability ·················································· 7 3. Mutual savings banks and commercial banks in Korea ··············· 8
III. Sample and Methodology ····················································· 10
1. Sample ···················································································· 10 2. Methodology ··········································································· 13
IV. Empirical Results ····································································· 15
1. Analysis of market competition ···························


Full Text
Title Bank competition and financial stability
Similar Titles
Sub Title

A comparative study of mutual savings banks and commercial banks in Korea

Material Type Reports
Author(English)

Jeon, Jin Q; Lim, Kwang Kyu

Publisher

[Seoul]:The Bank of Korea

Date 2013-07
Series Title; No BOK Working Paper / no. 2013-18
Pages 38
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Financial Policy
Holding The Bank of Korea; KDI School

Abstract

This study examines the influence of competition and concentration on financial stability in the Korean financial industry. Specifically, we test two alternative hypotheses: the competition-fragility hypothesis versus competition-stability hypothesis by using the sample of two different types of banks - Korean commercial banks and mutual savings banks (MSBs). Using measures for the competitive level and financial stability such as the Boone Index and Z-score, we find that the relationship between competition and stability varies depending on the characteristics of financial institutions. In commercial banks as well as MSBs, however, our estimated Boone Indices suggest that competition was much higher before the recent global financial crisis, but after then it has gradually declined. As Boyd and De Nicolo (2005) suggest, competition has a positive effect on the stability of MSBs with greater business risk and weaker corporate governance.