Market Concentration and the Likelihood of Financial Crises

CER-ETH – Center of Economic Research at ETH Zurich Working Paper No. 10/138

26 Pages Posted: 2 Oct 2010

See all articles by Lucas Bretschger

Lucas Bretschger

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Vivien Kappel

affiliation not provided to SSRN

Date Written: September 1, 2010

Abstract

According to theory, market concentration affects the likelihood of a financial crisis in different ways. The “concentration-stability” and the “concentration-fragility” hypotheses suggest opposing effects operating through specific channels. Using data of 160 countries for the period 1970-2007, this paper empirically tests these indirect effects of financial market structure. We set up a simultaneous system in order to jointly estimate financial stability and the relevant channel variables as endogenous variables. Our findings provide support for the assumption of channel effects in general and both the concentration-stability and the concentration-fragility hypothesis in particular. The effects are found to vary between high and low income countries.

Keywords: Market Concentration, Financial Crisis, Systemic Crisis

JEL Classification: G01, G21, E32

Suggested Citation

Bretschger, Lucas and Kappel, Vivien, Market Concentration and the Likelihood of Financial Crises (September 1, 2010). CER-ETH – Center of Economic Research at ETH Zurich Working Paper No. 10/138, Available at SSRN: https://ssrn.com/abstract=1685220 or http://dx.doi.org/10.2139/ssrn.1685220

Lucas Bretschger (Contact Author)

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Vivien Kappel

affiliation not provided to SSRN ( email )

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