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Article
FINANCIAL STABILITY AND CONCENTRATION: EVIDENCE FROM EMERGING EUROPE
Bogdan Capraru, Norel Ionut Moise, Simona Mutu, Nicolae Petria
ABSTRACT. This paper investigates the impact of banking sector concentration on financial stability, across a sample of 134 commercial banks from 17 countries of Central and Eastern Europe during the period of 2007-2012. Empirical findings highlight the concentration-fragility hypothesis, indicating that a high level of concentration in the banking sector is associated with a higher probability of default among banks, especially for the smaller ones. The authors also show that the negative influence of concentration might be reduced through a tight supervisory framework: (i) stringent official supervisory power of the banking sector, and (ii) differences between host and home country in terms of supervisory power can significantly reduce the negative impact of concentration on banks' probability of default .
KEYWORDS: financial stability, Z-score, concentration, supervisory power, size.
JEL classification: G21, G28.