TY - JOUR AU - Beck, Thorsten AU - Demirguc-Kunt, Asli AU - Levine, Ross TI - Bank Concentration and Fragility: Impact and Mechanics JF - National Bureau of Economic Research Working Paper Series VL - No. 11500 PY - 2005 Y2 - August 2005 DO - 10.3386/w11500 UR - http://www.nber.org/papers/w11500 L1 - http://www.nber.org/papers/w11500.pdf N1 - Author contact info: Thorsten Beck Cass Business School City University London 106 Bunhill Row London EC1Y 8TZ UK E-Mail: Thorsten.Beck.1@city.ac.uk Asli Demirguc-Kunt The World Bank 1818 H Street Washington, DC 20433 E-Mail: ademirguckunt@worldbank.org Ross Levine Haas School of Business University of California at Berkeley 545 Student Services Building, #1900 (F685) Berkeley, CA 94720-1900 Tel: 510-643-1419 E-Mail: Ross_levine@haas.berkeley.edu M1 - published as Thorsten Beck. "Bank Concentration and Fragility. Impact and Mechanics," in Mark Carey and René M. Stulz, editors, "The Risks of Financial Institutions" University of Chicago Press (2006) AB - Public policy debates and theoretical disputes motivate this paper's examination of (i) the relationship between bank concentration and banking system fragility and (ii) the mechanisms underlying this relationship. We find no support for the view that concentration increases the fragility of banks. Rather, banking system concentration is associated with a lower probability that the country suffers a systemic banking crisis. In terms of policies, we find that (i) regulations and institutions that facilitate competition in banking are associated with less—not more—banking system fragility and (ii) including these policy indicators does not change the results on concentration. This suggests that concentration is a proxy for something else besides the competitive environment. Also, we do not find that official capital regulations, reserve requirements, or official prudential regulations lower crises probabilities. Finally, we present suggestive evidence that concentrated banking systems tend to have larger, better-diversified banks, which may help account for the positive link between concentration and stability. ER -